Signature Bank and Silvergate, two of the largest crypto banks, have received billions in loans from the Federal Home Loan Banks, a system originally designed to support housing finance and community investment.
According to a Saturday report of the Wall Street Journal, Signature Bank received nearly $10 billion in loans from its local home loan bank in the last quarter of 2022, while Silvergate received at least $3.6 billion.
Signature loans are more than double its highest amount in several years, while 2022 marked the first year for Silvergate to tap into home loan banks, according to the report.
The Federal Home Loan Banks are 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 finance and community investment.
While FHLBs lending to other financial institutions are not out of the norm, some market participants have warned that lending to crypto-exposed banks could also lead to crypto contagion to traditional financial firms.
Senator Elizabeth Warren, who has been an outspoken critic of the crypto industry, has expressed concern over the growing relationship between crypto-exposed banks and TradFi companies. In her comments to the WSJ, she said:
“That’s why I’ve warned of the dangers of allowing crypto to intertwine with the banking system. Under no circumstances should taxpayers be left to blame for crypto industry meltdowns. – a market overflowing with fraud, money laundering and illicit finance.”
Signature Bank and Silvergate turned to home lending banks last year after the collapse of cryptocurrency exchange FTX eroded user confidence in the industry and led to increased withdrawals.
As noted, Silvergate suffered a bank run following the collapse of FTX. In addition to taking out loans, the crypto bank also had to sell $5.2 billion of debt securities it held on its balance sheet at a significant loss to cover around $8.1 billion in user withdrawals. . As a result, it suffered a loss of $718 million, which would exceed the bank’s total profits since 2013.
Additionally, Silvergate only had $3.8 billion in deposits at the end of 2022, compared to $11.9 billion in 2021. Similarly, deposits at Signature fell below $89 billion last year. last year, up from nearly $103 billion at the start of 2022.
Recent developments in the crypto market have also caused some banks to exit the crypto space. Moonstone Bank, a digital bank focused on serving high net worth individuals, is one such bank, which has announcement that it will refocus on the role of “community bank”.