Crypto-contagion is spreading through mortgage lenders

[ad_1]

Two banks in the cryptocurrency sector have turned to the federal mortgage system to facilitate customer withdrawals.

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

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

The news follows reports that both banks have seen an increase in outflows of crypto-related deposits from customers, and as the wider industry continues to grapple with the fallout from FTX’s collapse. last year and a broader slowdown in the sector.

The WSJ notes that borrowing from Signature, which primarily dealt in multifamily real estate before it got into crypto, is more than double the highest amount it has borrowed in several years, while Silvergate had no home bank loan the previous year.

In a recent earnings call, Silvergate reported a loss of $1 billion for the fourth quarter of 2022. CEO Alan Lane told analysts the bank plans to stop offering some cash management services, to discontinue some crypto custodial services and remove part of its digital asset product portfolio.

As FTX imploded, Silvergates 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 reliability has become increasingly polarized, with Japan pleading with regulators around the world to treat crypto companies with the same level of scrutiny as traditional banks.

If you want to implement effective regulation, you need to do the same as you regulate and supervise traditional institutions, said Mamoru Yanase, deputy director general of the Financial Services Agencies Strategy Development and Management Office. What caused the latest scandal isn’t the crypto technology itself, it’s loose governance, lax internal controls, and the lack of regulation and oversight.

Similar calls have been made by officials in the United States, with the senses. Elizabeth Warren, D-Mass., and Tina Smith, D-Minn., writing to federal financial regulators late last year to find out how they assess the crypto risk exposure of banking systems.

Banks’ relationships with crypto firms raise questions about the security and soundness of our banking system and highlight potential loopholes that crypto firms could try to exploit to gain wider access to banks, wrote the senators.

PYMNTS Data: Why Consumers Are Trying Digital Wallets

A PYMNTS study, New Payments Options: Why Consumers Are Trying Digital Wallets, reveals that 52% of US consumers tried a new payment method in 2022, and many chose to try digital wallets for the first time.

[ad_2]