Wall Street banks including Goldman Sachs are right now exploring ways to do institutional cash loans with Bitcoin as collateral, CoinDesk reported. The report cited three people familiar with the plans of a group of tier one U.S. banking institutions interested in this activity. Most banks would not custody physical Bitcoin to make the loans but instead resort to synthetic products such as futures.
The big idea is to emulate tri party repo agreements. That's a type of repurchase agreement in which a third party agent facilitates a 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.
Goldman Sachs is working on getting approved for lending against collateral and tri-party repo. And if they have a liquidation agent, then they are just doing secured lending without ever having Bitcoin touch their balance sheet. A second person from a large institutional trading firm said that while some banks will use a third party to make the loan, others plan to use their own balance sheet. Some of these plans are expected in the next three to six months and some are further out. What’s interesting is that a few banks will use their own balance sheet to make the loan. Other's won't.
According to the report, Coinbase and Fidelity Digital Assets were cited 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 already announced plans for Bitcoin custody services.
Additionally, Silvergate and Signature Bank both recently announced Bitcoin backed cash loans earlier this year. Towards the end of July, in an effort to meet client demand for crypto related product offerings, Goldman Sachs's primary brokerage unit started clearing and settling crypto ETPs for a limited number of clients in Europe. Before that, Goldman Sachs expanded into Bitcoin futures with Galaxy Digital.
In October, the Federal Deposit Insurance Corporation (FDIC) chairman said U.S. regulators were exploring ways for traditional banks to hold Bitcoin. One month later, 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.
The American banks aren't the only ones working on this. Hong Kong Stock Exchange listed Huobi Technology Holdings recently announced that it will be launching Huobi Lending, a cryptocurrency lending service for institutions and high net worth individuals through its new digital asset brokerage platform Huobi Brokerage.
Sources:
https://www.coindesk.com/business/2021/12/02/goldman-sachs-other-wall-street-banks-exploring-bitcoin-backed-loans-sources/
https://seekingalpha.com/news/3776615-goldman-sachs-explores-bitcoin-backed-loans-through-tri-party-repo-deals-coindesk
https://bitcoinmagazine.com/business/report-goldman-sachs-and-other-wall-street-banks-are-exploring-bitcoin-backed-loans
https://forkast.news/headlines/huobi-brokerage-crypto-lending-institutions/
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