US Home-Loan Banks Lent Billions Of Dollars To Crypto Banks, Says Report

Silvergate and Signature Bank allegedly borrowed at least $13 billion from the federal home loan system.

The United States Federal Home Loan Banks System (FHLB) is said to be lending billions of dollars to two of the biggest crypto banks with the aim of reducing the effects of a surge in rates of withdrawal, according to a report published by The Wall Street Journal on January 21.

By description, the FHLB is a consortium of 11 regional banks around the United States that offer funds to other lenders and banks. Launched during the Great Depression to support housing finance, the system has over $1.1 trillion in assets and is made up of more than 6,500 members.

The entity allegedly lent almost $10 billion to commercial bank Signature Bank in the past quarter of 2022, making it one of the biggest borrowing transactions by a bank in recent years. In 2018, the Signature got approval from the Department of Financial Services of New York for its budding blockchain-based digital platform.

The second bank to request funds from the FHLB was Silvergate, getting over $3.6 billion. In the last quarter of 2022, Silvergate recorded huge outflows of deposits and took some steps to maintain cash liquidity, including selling debt securities. The net loss arising from common shareholders in that period reached $1 billion, based on reports.

Based on Silvergate’s report, the average digital asset customer deposits in the fourth quarter of last year were $7.3 billion, a considerably lower amount compared to the previous quarter when the deposits reached about $12 billion.

Traditional finance has remained immune to crypto contagion after the collapse of FTX, but FHLB loans to crypto-exposed banks might increase the risk, according to the report

In comments to WSJ, Senator Elizabeth Warren said that “this is why I’ve been warning of the dangers of allowing crypto to become intertwined with the banking system,” alleging that taxpayers need not “be left holding the bag for collapses in the crypto industry”, which she referred to as a market filled with “fraud, money laundering, and illicit finance.”

FTX’s group collapse resulted in a ripple effect across the entire crypto space, impacting many firms. In the most recent development, Genesis crypto lender filed for Chapter 11 bankruptcy protection on January 19 having liabilities estimated between $1 billion and $10 billion.