Few banks will invest in cryptocurrencies, but Silvergate wants to touch Bitcoin by itself

Silvergate Bank is venturing further into a field where few financial institutions dare to walk on tiptoe.

The lender in La Jolla, California, made a name for himself by providing bank services in hard-to-get US dollars for businesses that trade with cryptocurrencies. But now Silvergate wants to manage digital assets themselves.

Although the bank does not yet have such services on its road map, it has applied for the New York trust license with the objective of providing custody and liquidation of cryptography. An example of this could be “providing settlement services for your bitcoin operations,” said Silvergate CEO Alan J. Lane.

In this scenario, Silvergate would be the intermediary that would guarantee the liquidation of a fiat exchange for bitcoin between two participants in its Silvergate Exchange Network (SEN), a payment platform that allows commercial customers to instantly move US dollars between crypto exchanges.

“In order for us to be that reliable intermediary, we have to be able to touch the digital assets ourselves,” Lane said. “Think of it as if Silvergate also had the ability to be the SEN for bitcoin.”

The service, almost certainly the first of its kind offered by a US commercial bank. In the US, it would not apply to retail investors or institutional investors who are already comfortable with Bitcoin with this asset class.

“They are people who are not yet ready to be in business, and part of the reason is because this does not exist,” Lane said, emphasizing that the bank does not yet have a product in mind to solve the problem. “Our current clients have already discovered a way to feel comfortable with this, but they tell us that there are other counterparts with whom they are not yet doing business because they do not have a reliable way of establishing themselves.”

Lane spoke with CoinDesk on Wednesday after Silvergate’s first conference call as a publicly traded company. Earlier in the day I had reported fourth-quarter results, including a 6 percent increase in encryption clients and a 4 percent decrease in those customers’ deposits.

What comes next

In 2020, Silvergate Bank can characterize that with the help of its staff, it ensures that the bank’s bitcoin guaranteed margin loans work well and resolve other weaknesses in the digital asset industry, Lane said.

Salary expenses increased almost 6 percent over the previous year to $ 8.7 million in the fourth quarter. Most of this was for customer service and software engineers, Lane said when asked what part of the expenses came from compliance costs.

The bank spends money on compliance, of course: Silvergate uses Chainalysis and Elliptic, Lane said. These suppliers analyze public blockchains to indicate suspicious activities, which banks must report according to Federal Reserve regulations.

With $ 2.1 billion in assets, Silvergate is a relatively small institution, 0.07 percent the size of JPMorgan. The active side of your balance sheet looks like a traditional community lender, consisting mainly of real estate loans. But that may begin to evolve soon.

In the immediate future, Silvergate’s biggest focus is its pilot of the SEN Leverage product, which allows proprietary operators to place bitcoin as collateral for fiduciary loans that they can then use to buy more bitcoin.

Since the 90 to 180 day pilot test will include only SEN participants, the bank will be able to monitor SEN leverage loans more closely than other types of loans.

“We can monitor the loan, the underlying loan guarantee and the loan balance, 24 hours a day, seven days a week,” Lane said. “We can monitor this much more closely than we can monitor almost any other loan we grant.”

In response to analysts’ questions in the company’s earnings call about the performance of SEN loans, Lane said: “The way we initially thought about this is that it would probably be a high single-digit type of cost to the borrower. “

In the interview, Lane emphasized that the bank would not take advantage of crypto clients in SEN loans just because other banks are not offering the same product. “We certainly aren’t going to take a look at what we’re charging them,” Lane said.

Silvergate is also working to increase the amount of fiat currencies it supports for currency transactions in the SEN to include at least the five or ten major world currencies. From the fourth quarter of 2018 to the fourth quarter of 2019, the volume in the SEN increased by 150 percent to an all-time high of 14,400 transactions that handle $ 9.6 billion.

Our clients say: “We would love to have the SEN for the euro and the SEN for the yen,” “said Lane.” That means having correspondent banking relationships with banks in those areas where those currencies are predominant and then being able to create a similar type network as to what we have created with the SEN “.

Dry powder

Making public Silvergate has given the crypto industry a clearer window to the bank’s business. It also positions Silvergate to raise capital more easily if necessary.

Currently, Silvergate has a leverage rate of 10.5 percent, which means that the bank has more than double the amount of capital required by bank regulators (5 percent).

“Only with that metric, we could double the size of the bank and not run out of capital,” Lane said. “That is just a metric, and I am not suggesting that we do that, but if we saw the leverage rate drop to 8 percent, we would seek to raise additional capital.”

The blockchain-bitcoin technology has all the possibilities to displace its potential for the benefit of the new financial industry, the generation of wealth can be the key to helping the whole society. Waiting for new announcements

Reference: coindesk.com

Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.

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