Major Crypto Banks Silvergate And Signature Bank Receive Billions In Loans From Federal Home Loans Bank

Silvergate and Signature Bank, two of the largest banks in the crypto space, have obtained loans of billions from Federal Home Loan Banks. Federal Home Loan Banks are a system fundamentally structured to back community investment and housing finance. A report was published by The Wall Street Journal on Saturday in which it mentioned that up to $10 Billion worth was obtained by Signature Bank from its native home-loan bank in loans.

Silvergate and Signature Bank Get Loans from the Federal Home Loans Banks

The loan was received in 2022’s last quarter. In addition to this, Silvergate also acquired an amount of nearly $3.6 billion. The loans of Signature are more than two times increased than its former biggest sum in many years. The year 2022 turned out to be the initial year when Silvergate moved toward the home-loan banks, according to the report.

The Federal Home Loan Banks comprise eleven US banks that are sponsored by the government to offer loans to the organizations. The respective system of banks was established at the time of the Great Depression. It has assets of approximately $1.1T worth as well as more than 6,500 members. The initial purpose of the system was to back community investment and housing finance.

Though the offering of loans by FHLBs to the rest of the financial organizations is not something unusual, a few players within the market have cautioned about this scenario. As per them, lending funds to crypto-exposed banking institutions could pave the way for the spread of crypto contagion also across firms dealing with conventional finance.

Elizabeth Warren (a US Senator who has frequently been voicing against the crypto industry) has also raised concerns in this regard. As per the senator, the expanding relationship between the TradFi firms and crypto-exposed banking institutions is dangerous. While making her remarks, Warren stated that she has been cautioning over the dangers of permitting the crypto to combine with the traditional banking system.

As per her, taxpayers should not be left having the bag for crashes in the market of cryptocurrency in any case. In her words, the crypto market is full of illegitimate finance, money laundering, as well as scams. Silvergate and Signature Bank moved toward home-loan banking organizations in 2022 after the crash of FTX (the crypto exchange established by Sam Bankman-Fried).

The respective event played a significant role in eliminating the trust of the investors in the crypto market. As a result of this, a huge rise was seen in the withdrawals. The reports pointed out that a bank run was gone through by Silvergate after the crash of FTX. Apart from obtaining loans, the crypto-centered banking institution was additionally compelled to trade a $5.2B worth of debt securities being held by it on the balance sheet.

The entity sold the respective assets at a considerable loss to cope with approximately $8.1B in consumer withdrawals. Eventually, it incurred a loss of almost $718M. This enormous sum reportedly goes beyond the cumulative profits of the bank since 2013. Moreover, the deposits on Silvergate equaled a $3.8B amount at 2022’s denouement.

Crypto Downturn Compels Several Banks to Leave the Space

In comparison with this, the deposits in 2021 equaled an $11.9B amount. Similarly, Signature’s deposits slumped lower the $89B level last year. While, at the beginning of 2022, they equaled $103B. The latest advancements in the world of crypto have additionally compelled some banking institutions to quit the crypto world including Moonstone Bank.

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