The two main banking partners of the crypto companies, Silvergate and Signature Bank, are also suffering the damage of a crypto market which will have seen one of the worst years in its young history. Cornered, they would have appealed to the FHLB to obtain large loans.
Silvergate and Signature Bank, main partners of crypto companies through their real-time payment system
The US banking system does not operate on a real-time payment system, a problem for an asset class like cryptos that trades non-stop. As well, Silvergate and Signature Bank have each developed a system that allows transactions to be made instantly and at any time, SEN for the first, Signet for the second. A boon for crypto players who have used their services massively, and a deal that seemed to be rolling perfectly as long as the market was in a bullish cycle.
But from the moment bitcoin prices and others took a nosedive, and even worse when cascading bankruptcies of crypto companies tensed the machine, the situation became tense. Silvergate posts $1 billion loss, topping already bleak forecasts.
As for Signature, which weighs much more than Silvergate in terms of asset management across all classes but which had fewer crypto-related clients, it announces a happier balance sheet with over 300 million net profit in Q4 2022, but plummeting deposits from crypto businesses. A situation that seems rather to fix it, its CEO claiming shortly after the fall of FTX (client of Signature), that his bank “was not only a cryptographic bank” and that this had to be known.
The 2 crypto-banks took out loans from the FHLB
Fact, unlike Silvergate, which intends to stay in the crypto industry, Signature wants to distance itself from it. Latest illustration of its desire to withdraw: the restrictions imposed on Binance users.
One of our fiduciary banking partners, Signature Bank, has indicated that it will no longer support any of its crypto exchange clients with buy and sell amounts below USD 100,000 effective February 1, 2023.
Statement by Binance
But while its financial health appears healthier than Silvergate’s, its stock market situation is more problematic, with its shares falling 64% last year according to Bloomberg. Like its counterpart, it would therefore have had recourse to the support of the Federal Home Loan Banks, a consortium made up of a dozen banks which, under the aegis of the federal government, grant loans to institutions. Thus, according to an article of wall street journal (WSJ), Signature Bank reportedly received nearly $10 billion in loans and Silvergate, $3.6 billion.
A situation feared by US banking regulators, haunted by the specter of contagion. At the beginning of the month, they had again sounded the alarm bell, no doubt informed of the initiatives of the two banks, by urging banking establishments to limit their foray into the crypto industry.
It remains to be seen how the latter will take this new blow.
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Federal Home Loan Banking System to the Rescue of Crypto-Banks Silvergate and Signature Bank
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