The Federal System of Mortgage Loan Banks (FHLB) is lending billions of dollars to two of the largest cryptocurrency banks in an effort to mitigate the effects of a surge in withdrawals. , according to a January 21 Wall Street Journal story.
The FHLB is a consortium of 11 regional banks from across the US 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.
Apparently, the entity lent almost USD 10,000 million to the commercial bank Signature Bank in the last quarter of 2022, which makes it one of the largest debt operations by a bank in recent years. In 2018, Signature received approval from the New York Department of Financial Services for its blockchain-based digital platform.
The second bank to request funds from the FHLB was Silvergate, which received about $3.6 billion. In the last quarter of 2022, Silvergate experienced significant deposit withdrawals and took steps to maintain cash liquidity, including the sale of debt securities. The net loss attributable to common shareholders in the period amounted to $1 billion, Cointelegraph reported.
According to the Silvergate report, average digital asset customer deposits in Q4 2022 were $7.3 billion, down significantly from the previous quarter, when deposits reached $12 billion.
Traditional finance has remained immune to crypto contagion after the FTX collapse, but FHLB loans to crypto-exposed banks could increase that risk, the news notes.
Speaking to WSJ, Senator Elizabeth Warren noted that this is why she has been warning of the dangers of allowing cryptocurrencies to become intertwined with the traditional banking system, claiming that taxpayers should not be left “holding the bag” over collapses in the digital asset industry, which he called a market rife with “fraud, money laundering and illicit finance.”
The collapse of FTX Group caused a ripple effect throughout the cryptocurrency industry, affecting many companies. In the most recent development, cryptocurrency lender Genesis filed for Chapter 11 bankruptcy protection on January 19, with liabilities estimated at between $1 billion and $10 billion.
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