Silvergate and Signature Banks Tap FHLB Funds for Crypto Lending

Two cryptocurrency-sector banks have turned to the federal mortgage system to ease customer withdrawals.

Silvergate Capital and Signature Bank have borrowed billions from Federal Home Loan Banks, the system created to back mortgage lending during the Great Depression, The Wall Street Journal (WSJ) reported Saturday (Jan. 21).

Signature borrowed nearly $10 billion in the fourth quarter, the report said, citing securities filings, while Silvergate borrowed $3.6 billion.

The news comes in the wake of reports that both banks saw a rise in outflows of crypto-related deposits from customers, and as the overall industry continues to deal with the fallout from last year’s collapse of FTX and a broader downturn in the sector.

The WSJ notes that borrowings at Signature — which mostly dealt in multifamily real estate before getting into crypto — are more than double the highest amount it borrowed in several years, while Silvergate had no home-loan bank borrowings the previous year.

On a recent earnings call, Silvergate announced a $1 billion loss for the fourth quarter of 2022. CEO Alan Lane told analysts that the bank plans to cease offering certain cash management services, discontinue some crypto custody services, and do away with a portion of its digital-asset product portfolio.

As FTX imploded, Silvergate’s customers withdrew around $8.1 billion in deposits in the last three months of 2022.

As PYMNTS wrote last week, the “conversation around cryptocurrencies and their trustworthiness has grown increasingly polarized,” with Japan begging regulators worldwide to treat crypto companies with the same level of oversight as they do traditional banks.

“If you like to implement effective regulation, you have to do the same as you regulate and supervise traditional institutions,” Mamoru Yanase, deputy director-general of the Financial Services Agency’s Strategy Development and Management Bureau, said. “What’s brought about the latest scandal isn’t crypto technology itself, it is loose governance, lax internal controls and the absence of regulation and supervision.”

Similar calls have come from officials in the U.S., with Sens. Elizabeth Warren, D-Mass., and Tina Smith, D-Minn., writing to federal financial regulators late last year to find out how they assess the banking system’s crypto risk exposure.

“Banks’ relationships with crypto firms raise questions about the safety and soundness of our banking system and highlight potential loopholes that crypto firms may try to exploit to gain further access to banks,” the senators wrote.