Borrowed by Signature and Silvergate
Two major U.S. crypto banks have borrowed billions of dollars from the Federal Home Loan Bank (FHLB) to meet an increase in customer withdrawals. 21, the Wall Street Journal reported.
In Q4 2022 (October-December), Signature Bank borrowed nearly 1.3 trillion yen ($10 billion) from FHLB, and Silvergate Capital, which owns Silvergate Bank, also borrowed at least about 4,700 yen in the same period. 100 million yen ($3.6 billion) in loans.
What is the Federal Home Loan Bank (FHLB)?
It was established by the Federal Home Loan Banking Act of 1932 as a corporation to support mortgage lending and community investment. Each year, it provides billions of dollars in low-cost loans to US banks, credit unions, insurance companies and other financial institutions.
▶️Cryptocurrency Glossary
As a background, the price of virtual currency will plummet in 2022 due to the Terra (LUNA) shock and the collapse of Celsius Network (Celsius) and Three Arrows Capital (3AC). Furthermore, in November of the same year, FTX filed for bankruptcy, and withdrawal requests from the two banks surged.
Silvergate situation
Silvergate announced provisional financial indicators for 2022 4Q on the 5th. It reported that digital asset customer deposits fell from about 1.5 trillion yen ($11.9 billion) at the end of September 2022 to about 500 billion yen ($3.8 billion) at the end of December 2020.
The company also used market-raised funds to meet this increase in client money withdrawals, and sold approximately ¥670 billion ($5.2 billion) of debt securities to maintain liquidity on its balance sheet. continued.
In the future, the company plans to reduce the number of employees and adjust expenses and portfolios.
Relation: US Silvergate, cryptocurrency-related deposits sharply decreased in 4Q 2022, to reduce employees by 40%
Response policy of Signature Bank
On the other hand, signature bank deposits will also decline for the first time in 20 years in 2022. At the beginning of the year, deposits of approximately 13 trillion yen (approximately $103 billion) were stored, but in 4Q, approximately 12 trillion yen (approximately 89 billion yen). dollar).
Signature Bank Chief Operating Officer Eric Howell commented:
When it comes to cryptocurrencies, deposits may still flow out. In the 1st and 2nd quarters of 2023 (January to June), they will need to take advantage of higher cost borrowing to make up for that.
Howell said the bank’s borrowings were “relatively low for a bank historically,” especially in a time when liquidity has dried up due to the Fed’s tightening. He also argues that there aren’t that many.
He added that the bank has also begun repaying some of its debt as it strengthens its policy to reduce deposits related to cryptocurrencies.
Criticism from some lawmakers
One of the missions of the Federal Home Loan Bank (FHLB) is to help banks secure liquidity. However, there are also opinions that it is not its original mission to help with the negative chain that has occurred in the cryptocurrency industry.
For example, Senator Elizabeth Warren, a longtime critic of cryptocurrencies, said, “I have warned of the dangers of cryptocurrencies creeping into the traditional banking system. We should not be victimized by the failure of the cryptocurrency industry, which is rife with illicit finance.”
