To facilitate customer withdrawals, two cryptocurrency-related banks have turned to the federal mortgage system.
The Wall Street Journal (WSJ) revealed Saturday that Silvergate Capital and Signature Bank borrowed billions of dollars from Federal Home Loan Banks, the system established to underpin mortgage lending during the Great Depression (Jan. 21).
According to the article, which cited securities filings, Signature borrowed roughly $10 billion in the fourth quarter, while Silvergate borrowed $3.6 billion.
The announcement follows allegations that both banks reported an increase in client outflows of crypto-related deposits, as the wider industry deals with the aftermath from FTX’s bankruptcy last year and a broader slowdown in the sector.
The WSJ reports that Signature’s borrowings — which mostly dealt in multifamily real estate before venturing into crypto — are more than double the greatest amount the company has borrowed in recent years, while Silvergate had no home-loan bank borrowings the previous year.
Silvergate disclosed a $1 billion loss for the fourth quarter of 2022 during a recent earnings call. According to CEO Alan Lane, the bank intends to terminate certain cash management services, as well as some crypto custody services and a piece of its digital-asset product line.
Silvergate’s clients withdrew around $8.1 billion in deposits when FTX crumbled in the final three months of 2022.
As I reported last week, the “discussion around cryptocurrencies and their trustworthiness has grown increasingly divisive,” with Japan pleading with authorities across the world to approach crypto businesses with the same amount of scrutiny as regular banks.
“If you want to execute effective regulation, you must do the same thing you do when you regulate and monitor conventional institutions,” said Mamoru Yanase, deputy director-general of the Financial Services Agency’s Strategy Development and Management Bureau. “The newest incident was caused by poor governance, insufficient internal controls, and a lack of legislation and oversight, not by crypto technology itself.”