The United States Federal Home Loan Banks System (FHLB) lent billions of dollars to the two largest cryptocurrency banks in an effort to reduce the effects of the increase in withdrawals, according to a report from The Wall Street Journal on January 21.
The FHLB is a consortium of 11 regional banks in the United States that provide funds to banks and other lenders. Founded during the Great Depression to support housing finance, the system has $1.1 trillion in assets and more than 6,500 members.
Traditional finance remains immune to crypto contagion after the FTX collapse, but FHLB loans to crypto-exposed banks could increase the risk, the report notes.
The entity reportedly lent nearly $10 billion to commercial Signature Bank in the last quarter of 2022, making it one of the largest loan transactions by the bank in recent years. In 2018, Signature received approval from the New York Department of Financial Services for a blockchain-based digital platform.
The second bank to request funding from the FHLB is Silvergate, receiving at least $3.6 billion. In the last quarter of 2022, Silvergate experienced an outflow of deposits and took steps to maintain cash liquidity, including the sale of debt securities. The net loss attributable to common shareholders in the period amounted to $1 billion, Cointelegraph reported.
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According to the Silvergate report, the average customer deposit of digital assets in the fourth quarter of 2022 was $7.3 billion, a lower amount compared to the previous quarter when deposits reached $12 billion.
In a comment for the WSJ, Senator Elizabeth Warren noted that “that is why I have warned of the dangers of allowing crypto to become intertwined with the banking system,” claiming that taxpayers should not be “left holding the bag to collapse in crypto”. industry”, which he called the market full of “fraud, money laundering and illegal finance.”
The collapse of the FTX group caused a ripple effect in the crypto industry, affecting many companies. In the latest development, crypto lender Genesis filed for Chapter 11 bankruptcy protection on January 19, owing approximately between $1 billion and $10 billion.