Bank signature And silver gatetwo of the largest banks in the crypto space, have benefited from multi-billion dollar loans from the Federal home loan banksa system originally designed to support housing financing and community investment.
Signature Bank received nearly $10 billion in loans from its local home loan bank in the fourth quarter of 2022, while Silvergate received at least $3.6 billion, according to a report released Saturday by The Wall Street Journal.
Signature’s loans are more than double the highest amount the bank has received in several years, while 2022 was the first year Silvergate tapped federal banks for home loans, according to the WSJ.
The Federal Home Loan Banks are a group of 11 US government sponsored banks that provide loans to institutions. Founded during the Great Depression, the system has $1.1 trillion in assets and more than 6,500 members and was originally designed to support housing financing and community investment.
While FHLB’s loans to other financial institutions are nothing out of the ordinary, some market participants have warned that loans to banks with cryptocurrency exposure could spread the crypto industry’s woes to traditional financial firms (TradFi).
The Senator Elizabeth Warren, who has been an outspoken critic of the cryptocurrency industry, has expressed concern about the growing relationship between cryptocurrency-exposed banks and TradFi firms. In a comment to the WSJ, he said:
“That’s why I warned of the dangers of allowing the cryptocurrency industry to have a close relationship with the banking system. collapse of the cryptocurrency industry, a market full of fraud, money laundering and illicit financing.”
Last year Signature Bank and Silvergate turned to home loan banks following the stock market crash FTP extensionwhich eroded user confidence in the industry and led to a spike in withdrawals.
As reported, Silvergate experienced a “bank run” following the bankruptcy of FTX. The crypto bank was also forced to proceed with the sale of $5.2 billion of debt securities it held on its balance sheet, at a loss, to cover about $8.1 billion in withdrawals from its user customers. As a result, it posted a loss of $718 million, an amount that would exceed the bank’s total profits since 2013.
Additionally, Silvergate had just $3.8 billion in deposits at the end of 2022, up from $11.9 billion in 2021. Similarly, Signature deposits fell below the $89 billion mark last year, compared with nearly $103 billion in early 2022.
Recent developments in the cryptocurrency market have also pushed some banks out of the crypto space. Moonstone banka digital bank specializing in services to the wealthy, is one of them and has announced that it will refocus on the role of “community bank”.
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