According to a Jan. 21 Wall Street Journal report, the United States Federal Home Loan Banks System (FHLB) is lending billions of dollars to two of the largest cryptocurrency banks to mitigate the impact of a surge in withdrawals.
The FHLB is a syndicate of 11 regional banks across the United States that provide funding to other banks and lenders. Founded during the Great Depression to support home finance, the system has $1.1 trillion in assets and over 6,500 members.
The company reportedly lent nearly $10 billion to commercial bank Signature Bank in the last quarter of 2022, making it one of the largest borrowings by a bank in recent years. In 2018, Signature received approval from the Department of Financial Services of New York for its blockchain-based digital platform.
The second bank to request funds from the FHLB was Silvergate, which received at least $3.6 billion. During the last quarter of 2022, Silvergate experienced significant deposit outflows and took measures to maintain cash liquidity, including debt sales. The net loss attributable to common shareholders was $1 billion during the period, Cointelegraph reported.
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According to Silvergate’s report, average customer deposits for digital assets were $7.3 billion in the fourth quarter of 2022, a significantly lower amount compared to the previous quarter when deposits reached $12 billion.
Traditional finance has remained immune to crypto contagion following the collapse of FTX, but FHLB lending to crypto-exposed banks could increase that risk, the report notes.
In comments to the WSJ, Sen. Elizabeth Warren noted, “That’s why I’ve warned about the dangers of crypto becoming entwined with the banking system,” claiming that taxpayers shouldn’t “hold the sack for the crypto industry’s collapse,” which calling it a market rife with “scams, money laundering and illicit finance”.
The collapse of the FTX group caused a domino effect across the crypto industry, affecting many companies. In the most recent development, crypto lender Genesis filed for Chapter 11 bankruptcy protection on Jan. 19 with liabilities estimated at $1 billion to $10 billion.