Fintech CEO: Federal Home Loan Bank Has No Business in Crypto
- 23.01.2023 09:50 am
Silvergate Bank, known for offering banking services to the emerging cryptocurrency industry, has taken advantage of a quasi-federal lending program, the Federal Home Loan Bank of San Francisco, in order to stay afloat during a run on the bank. In Q4 of 2022, the bank saw customer withdrawals of $8.1 billion, accounting for 70% of the bank’s deposits. The Federal Home Loan Bank system was created during the Great Depression in order to make homeownership more affordable.
“FHLBs are allowed to offer secured loans to member banks so that those banks could turn around and offer mortgages to homeowners at lower rates. But, let’s be honest here. Silvergate may be a member bank, but it is certainly not in the business of offering reduced-interest mortgages to consumers. Because they received a short-term advance rather than a long-term advance, there are no restrictions which mandate that they use the funds to further mortgage-related work,” said Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges.
“There are a few reasons why this is concerning. From a purely financial perspective, the structure of the FHLB program is an issue. As a privately funded institution, it enjoys a lien priority which puts it ahead of the FDIC in bankruptcies. That means that if and when Silvergate finally succumbs to bankruptcy, the FDIC would be responsible for honouring deposit insurance on the bank’s FDIC-backed accounts, while the FHLB gets paid back first. Conceptually, the entire scheme is insane,” said Gardner.
“Beyond simply the financials, though, there’s more. This is a program that has stood the test of time for nearly a century. It was designed especially to encourage homeownership during rocky financial times. As interest rates climb through the roof and as we enter a global recession, Main Street is being bled dry from massive pandemic-era spending packages which, combined with supply chain shortages and a land war in Eastern Europe, have brought forth the worst inflationary crisis we’ve seen in a generation. In the midst of all of that, Silvergate has its hand out. It’s disgusting,” said Gardner.
“The bank is clearly trying to support its capital reserves to endure the bank run it has seen. While that’s admirable, it is just not acceptable that a quasi-federal lending program designed to bolster homeownership is actively bailing out crypto. In no world should that be okay. Not to the public, not to the government, not to the industry,” said Gardner.
Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Over the past twenty years, the company has built technology for the world’s most notable exchanges, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.
“Crypto enthusiasts often have a hard time grasping how detractors could fail to get on board. This. This is why. Some companies and exchanges within the industry act with impunity. They are bad actors who have no regard for society. We saw it play out with Sam Bankman-Fried, and now we’re seeing it play out with Silverfish, though that’s just the tip of the iceberg. There’s a reason that Binance is being probed by the DOJ. The industry needs a thorough cleansing. It needs increased regulation. It needs to operate under the law, as any other industry would. Right now, it isn’t, and that’s a major problem,” said Gardner.