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Crypto Contagion Spreads Through Mortgage Lenders Silvergate and Signature

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 the Federal Home Loan Banks, the system created to support mortgage lending during the Great Depression, The Wall Street Journal (WSJ) reported 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 the two banks saw a increase in outflows crypto-related deposits from customers, and as the industry as a whole continues to grapple with the fallout from the collapse of FTX last year and a broader industry downturn.

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 none. 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, Silvergate customers withdrew around $8.1 billion in deposits in the last three months of 2022.

As PYMNTS wrote last weekthe “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 must do the same as you regulate and supervise traditional institutions,” said Mamoru Yanase, deputy director general of the Office of Strategy Development and Management of the Service Agency. financial. “What caused the latest scandal was not the crypto technology itself, it was loose governance, lax internal controls, and the lack of regulation and oversight.”

Similar calls came from officials in the United States, with Sens. Elizabeth Warren, D-Mass., and Tina Smith, D-Minn., write to federal financial regulators at the end of last year to find out how they assess the crypto risk exposure of the banking system.

“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 better access to banks,” they said. wrote the senators.

PYMNTS Data: Why Consumers Are Trying Digital Wallets

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

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