Goldman Sachs And Other Banks Are Looking Into Bitcoin Backed Loans
Goldman Sachs along with other Wall Street banks are looking into ways to do institutional cash loans with bitcoin as collateral, according to a report which cited three people familiar with the plans of a group of tier-one U.S. banking institutions interested in the activity.
The Coindesk report however, outlined that most banks would not custody “physical” bitcoin to make the loans but instead, would rely on synthetic products such as futures.
The report elaborated that idea is to emulate tri-party repo agreements, which are a type of repurchase agreement in which a third-party agent facilitates the transaction between buyer and seller by taking custody of the collateral and ensuring proper delivery of cash and the involved assets to each party as per the agreement’s terms.
One of the persons cited on the report said:
“Goldman was working on getting approved for lending against collateral and tri-party repo.
And if they had a liquidation agent, then they were just doing secured lending without ever having bitcoin touch their balance sheet.”
According to another person from a large institutional trading firm, some banks will use a third party to make the loan, others plan to use their own balance sheet.
“We’ve probably spoken to half a dozen big banks about [bitcoin-backed loans]. Some of them are in the next three to six months category and some are further out. What’s interesting is some of these banks will use their own balance sheet to make the loan. Others will syndicate this out.”
The report cited Coinbase and Fidelity Digital Assets were as potential custodians the banks were in discussions with.
U.S. banks and savings associations received the green light to custody cryptocurrency for clients last year through a letter published by the Office of the Comptroller of the Currency (OCC). Although questions remained at the time, this year, BNY Mellon and U.S. Bank announced plans for bitcoin custody services.
In October, the Federal Deposit Insurance Corporation (FDIC) chairman said U.S. regulators were exploring ways for traditional banks to hold bitcoin.
In November, the FDIC issued a joint statement with the Federal Reserve and the OCC on the matter, saying the three agencies would provide greater regulatory clarity in 2022 for banking institutions interested in engaging with bitcoin.
