U.S. Home Loan Banks Lent Billions of Dollars to Crypto Banks: Report

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The U.S. Federal Home Loan Banks System (FHLB) is lending billions of dollars to two of the biggest cryptocurrency banks in a bid to mitigate the effects of increased withdrawals, according to a Wall Street Journal report of January 21.

The FHLB is a consortium of 11 regional banks across the United States that provide funds to other banks and 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 remained immune to crypto contagion following the collapse of FTX, but FHLB lending to crypto-exposed banks could increase this risk, the report notes.

The entity reportedly lent almost $10 billion to commercial bank Signature Bank in the last quarter of 2022, making it one of the largest borrowing deals by a bank in recent years. In 2018, theSignature received approval from the New York Department of Financial Services for its blockchain-based digital platform.

Silvergate was the second bank to apply for funds from the FHLB, receiving at least $3.6 billion. In the last quarter of 2022, Silvergate experienced significant deposit outflows and took steps to maintain cash liquidity, including selling debt securities. Net loss attributable to common shareholders during the period was $1 billion, Cointelegraph reported.

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According to the Silvergate report, average customer deposits in digital assets in the fourth quarter of 2022 were $7.3 billion, significantly lower than the previous quarter, when deposits reached $12 billion.

In comments to the WSJ, Senator Elizabeth Warren noted that this is why I warned of the dangers of allowing crypto to intertwine with the banking system,” saying taxpayers shouldn’t “stay arms in the event of a collapse in the crypto industry,” which she called a market full of “fraud, money laundering and illicit financing.”

The collapse of the FTX Group has caused a ripple effect in the crypto industry, affecting many businesses. In the most recent development, crypto lender Genesis filed for Chapter 11 bankruptcy protection on January 19, with liabilities estimated between $1 billion and $10 billion.

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