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Two crypto sector banks turned to the federal mortgage system to facilitate customer withdrawals.
The Wall Street Journal (WSJ) reported on Saturday (January 21) that Silvergate Capital and Signature Bank have borrowed billions of dollars from the Federal Mortgage Bank.
Signature borrowed about $10 billion in the fourth quarter, and Silvergate borrowed $3.6 billion, according to the report.
The news comes as the banks report an increase in outflows of crypto-related deposits from customers as the industry as a whole continues to grapple with the fallout of last year’s FTX collapse and the sector’s broader recession. Thing.
According to the WSJ, Signature’s borrowings, which primarily dealt with multi-family real estate before venturing into cryptocurrencies, are more than double the highest borrowings in recent years, while Silvergate’s borrowings are more than double the previous year’s. had no mortgage bank loans.
In its recent earnings call, Silvergate announced a loss of $1 billion in the fourth quarter of 2022. CEO Alan Lane told analysts that the bank has stopped offering certain cash management services, has discontinued some cryptocurrency custody services, and plans to phase out some of them. Digital Asset Product Portfolio.
Silvergate customers withdrew nearly $8.1 billion in deposits in the last three months of 2022 as FTX collapsed.
As PYMNTS wrote last week, “the debate over cryptocurrencies and their credibility has become increasingly polarized,” and Japan has asked regulators around the world to apply the same level of oversight to cryptocurrency companies as traditional banks. are requested to handle
Mamoru Yanase, Deputy Director General of the Financial Services Agency’s Planning Bureau, said, “For effective regulation, we must do the same thing as we regulate and supervise traditional institutions.” “It is not cryptography per se that has led to the latest scandal, but lax governance, lax internal controls, lack of regulation and oversight.”
There have been similar calls from U.S. officials, including Senators Elizabeth Warren (D-Massachusetts) and Tina Smith (D-Minnesota), who wrote to federal financial regulators late last year calling for encryption in the banking system. We looked at how they assess their risk exposure. .
“Banks’ relationships with cryptocurrency companies call into question the safety and health of the banking system and highlight potential loopholes that cryptocurrency companies seek to exploit to gain further access to the banks.” wrote the senator.
PYMNTS Data: Why Consumers Are Trying Digital Wallets
According to the PYMNTS survey, New Payment Options: Why Consumers Are Trying Digital Wallets, 52% of US consumers will try new payment methods in 2022, with many choosing to try digital wallets for the first time. bottom.
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