By The Financial District
Feb 11, 20232 min
Facing a wave of withdrawals from nervous investors, a crypto bank is staying solvent thanks to an unusual multibillion-dollar loan from a home lending bank— a move analyst Jim Cramer says should knock you off your chair, Bethan Moorcraft wrote for MoneyWise.
Photo Insert: Silvergate Capital Corp. — a California-based bank that provides financial services to the digital asset industry — sought a $4.3 billion loan to make it through the “crisis of confidence across the (crypto) ecosystem” late last year.
“This is extraordinary,” the Mad Money host and crypto skeptic tweeted last week. “A bailout loan from the Federal Home Loan Bank (FHLB) for a crypto bank to stem the run. I wish people knew how dangerous this is all getting. NOT business as usual,” Cramer insisted.
The bank run is a sign of yet more instability for crypto investors after a disastrous 2022. Cramer said he would not touch a crypto bank in a million years.
FHLB is composed of 11 regional banks that are privately capitalized and owned as cooperatives by their members, which include banks, credit unions, insurance companies and community development financial institutions.
The system is regulated by the Federal Housing Finance Agency and provides access to billions of dollars in low-cost funding to members through secured loans.
Cramer’s outcry comes after Silvergate Capital Corp. — a California-based bank that provides financial services to the digital asset industry — sought a $4.3 billion loan to make it through the “crisis of confidence across the [crypto] ecosystem” late last year.
How bad was the crisis? Silvergate saw total deposits from their digital asset customers plummet from $11.9 billion on Sept. 30 to just $3.8 billion on Dec. 31, company filings show.
“In response to the rapid changes in the digital asset industry during the fourth quarter, we took commensurate steps to ensure that we were maintaining cash liquidity in order to satisfy potential deposit outflows,” explained Silvergate CEO Alan Lane.
Those steps included selling $5.2 billion of debt securities (at a $718 million loss) and seeking out a mega loan from the FHLB of San Francisco, which was created during the Great Depression to support mortgage lending and community investment. Since then, things haven't been looking up for Silvergate.
Bloomberg also reports that the US Justice Department's fraud department are in the early phases of investigating Silvergate's dealing with FTX and Alameda Research. Silvergate saw shares drop more than 20% on Feb. 2.