U.S. home-loan banks lent billions of dollars to crypto banks: Report

U.S. home-loan banks lent billions of dollars to crypto banks: Report

The United States Federal Home Loan Banks System (FHLB) is lending billions of dollars to two of the biggest cryptocurrency banks in an effort to mitigate the results of a surge in withdrawals, according to a report from The Wall Street Journal on Jan. 21. 

The FHLB is a consortium of 11 regional banks throughout the United States that present funds to different banks and lenders. Founded throughout the Great Depression to assist housing finance, the system has $1.1 trillion in belongings and over 6,500 members.

The entity reportedly lent practically $10 billion to business financial institution Signature Bank within the final quarter of 2022, making it one of the biggest borrowing transactions by a financial institution in recent times. In 2018, the Signature received approval from the Department of Financial Services of New York for its blockchain-based digital platform.

The second financial institution to requeste funds from the FHLB was Silvergate, receiving at the very least $3.6 billion. In the final quarter of 2022, Silvergate skilled vital outflows of deposits and took steps to preserve money liquidity, together with promoting debt securities. The net loss attributable to common shareholders within the interval summed to $1 billion, Cointelegraph reported.

Related: BIS proposes research model to study DeFi’s integration with TradFi and its risks

According to Silvergate’s report, the common digital asset buyer deposits within the fourth quarter of 2022 was $7.3 billion, a considerably decrease quantity in contrast to the prior quarter when deposits reached $12 billion.

Traditional finance has remained immune to crypto contagion following the collapse of FTX, however FHLB loans to crypto-exposed banks may enhance that threat, notes the report.

In feedback to WSJ, Senator Elizabeth Warren famous that “for this reason I’ve been warning of the hazards of permitting crypto to turn into intertwined with the banking system,” claiming that taxpayers mustn’t “be left holding the bag for collapses within the crypto business”, which she known as a market full of “fraud, cash laundering and illicit finance.”

FTX’s group collapse brought about a ripple impact throughout the crypto business, affecting many firms. In the latest improvement, crypto lender Genesis filed for Chapter 11 chapter safety on Jan. 19, having liabilities estimated between $1 billion and $10 billion.