According to a Jan. 21 article by The Wall Street Journal, the Federal Home Loan Bank System (FHLB) of the United States has financed billions of dollars to two of the biggest crypto banks with an aim to lessen the impact of a spike in withdrawals.
The FHLB is an association of 11 regional banks from different parts of the country that lend money to other banks and lenders. The system, which was started during the Great Depression to promote housing finance, now has over 6,500 members and $1.1 trillion in assets.
The entity is said to have issued a nearly $10 billion loan to the financial institution Signature Bank in the final quarter of 2022, becoming the biggest bank borrowing deals in recent history. The New York Department of Financial Services gave Signature permission to use blockchain technology for its digital platform in 2018.
Silvergate is the second crypto bank to request a loan from the FHLB of at least $3.6 billion, as per the report. Silvergate experienced huge deposit outflows in the last quarter of 2022 and responded by selling debt securities, among other things, to maintain cash liquidity.
FTX Implosion Affected Crypto Banks
Following the demise of FTX, traditional finance is stable compared to the crypto volatility, but the report warns that the risk may increase if FHLB loans are made to banks that are vulnerable to the cryptocurrency.
Big names have also spoken out against the connection between cryptocurrencies and banks. Senator Elizabeth Warren expressed her concerns about the integration of cryptocurrencies with banking systems in an interview with the Wall Street Journal. Taxpayers shouldn’t “be left holding the bag for collapses in the crypto industry,” Warren said.
The fall of FTX shook the cryptocurrency sector, leaving many businesses in a state of turmoil. In the most recent development, bitcoin lender Genesis said that they had filed for Chapter 11 bankruptcy protection on January 19 with liabilities valued at between $1 billion and $10 billion.