Cryptocurrency use is becoming more widespread as companies and financial firms around the world get into the industry. Digital assets are meant to transform how financial systems work and banks are starting to make use of them to facilitate certain aspects of their business.
Silvergate Capital Corporation has announced plans to distribute cryptocurrency backed loans. The firm is the holding company of Silvergate Bank, which is known for its crypto-friendly policies.
Silvergate said that they believe there are greater opportunities to give their clients with crypto borrowing facilities in order to foster stronger relationships with their clients and grow their interest income.
Crypto backed loans
Silvergate indicates that their decision to offer cryptocurrency-backed loans was fueled by demand for this kind of borrowing. Cryptocurrency backed loans require a borrower to provide digital assets or fiat currency as collateral against the credit they need.
It is up to the bank to determine how much of a loan can be given out against the collateral an individual provides.
The bank will also develop a framework through which they can analyze the risk involved in the credit and minimize said risk. The initial frameworks will be used to create the overall models which will be used to lend to future customers.
The crypto related loans will be availed to the bank’s institutional clients later this year. The bank is also considering moving into cryptocurrency trading.
They said that their clients have shown interest for the bank to engage in custody and transfer of cryptocurrency between customers.
Crypto businesses bringing revenue to Silvergate
Silvergate has been getting into business with crypto related companies over the last few years. Many crypto exchanges, global investors, custodians, and miners got into business with Silvergate in last quarter of 2018.
During that period, the bank reported receiving deposits to the time of $150.4 million from its cryptocurrency clients.
These deposits made up about 11.4% of the bank’s total received deposits.
An analysis of the benefits Silvergate has gotten from allowing crypto related businesses to engage with them shows that crypto related businesses can boost the earnings of financial institution.
More people want to buy cryptocurrencies and providing them with the necessary channels in their existing banks would go a long way in bringing ease to crypto trading.
Silvergate has already shown that it is a crypto-friendly bank and it can be speculated within reason that the bank may one day provide custody and transfer services for cryptocurrency.
The crypto-backed loan service the bank has announced will attract traders, and the bank will grow in its relationship with cryptocurrency.