The United States Federal Home Loan Bank (FHLB) is lending billions of dollars to two of the largest cryptocurrency banks in an effort to mitigate the effects of a surge in foreclosures, according to per a Jan. 21 report by The Wall Street Journal.
The FHLB is a consortium of 11 regional banks across the United States that provide financing 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 after the FTX collapse, but FHLB loans to banks exposed to cryptocurrencies could increase that risk, the report said.
The entity reportedly lent nearly $10 billion to commercial bank Signature Bank in the last quarter of 2022, making it one of the bank’s largest borrowing transactions in recent years. In 2018, The signature was approved from the New York Department of Financial Services for its blockchain-based digital platform.
The second bank to ask the FHLB for funds was Silvergate, which received at least $3.6 billion. In the last quarter of 2022, Silvergate experienced a significant outflow of deposits and took steps to maintain cash liquidity, including the sale of debt securities. The net loss attributable to common stockholders in the period totaling $1 billion, Cointelegraph reported.
According to a report by Silvergate, average customer deposits of digital assets were $7.3 billion in the fourth quarter of 2022, a significant decrease compared to the previous quarter, when deposits reached $12 billion.
In comments to the WSJ, Senator Elizabeth Warren noted that “this is why I warned about the dangers of tying cryptocurrencies to the banking system” and argued that taxpayers “should not be left holding the bag for cryptocurrency collapses.” industry,” which she called a market rife with “fraud, money laundering and illicit financing.”
The collapse of the FTX group caused a domino effect throughout the crypto industry and affected many companies. In recent developments, crypto lender Genesis has filed for Chapter 11 bankruptcy protection on Jan. 19 with estimated liabilities between $1 billion and $10 billion.