To protect against the potential rise in withdrawals, The Wall Street Journal reported on Jan. 21 that two of America’s leading crypto banks are receiving billions of dollars from the Federal Home Loan Banks System (FHLB).
During the Great Depression, 11 regional banks joined forces to form the Federal Home Loan Bank (FHLB), which provides funds for lenders and other financial institutions. This steadfast consortium has an impressive $1.1 trillion in assets spread across 6,500 members nationwide.
Despite the FTX debacle, traditional finance has remained untouched by crypto contagion—until now. According to a recent report, FHLB loans of up to $10 billion were granted in late 2022 to Signature Bank. This commercial bank was given the green light from New York’s Department of Financial Services two years prior due to its blockchain-based digital platform. This is one of the largest borrowing transactions undertaken by a single bank in modern times and could consequently increase the risk for all parties involved with cryptocurrencies.
Silvergate, the second bank to receive funds from the FHLB, obtained a whopping $3.6 billion in total. However, during Q4 of 2022, they experienced massive outflows of deposits that led them to take steps towards preserving cash liquidity such as issuing debt securities. This resulted in an overall net loss for common shareholders amounting to $1 billion.
Silvergate’s report indicates that digital asset customer deposits in the fourth quarter of 2022 were far lower than before, with a total average deposit amounting to $7.3 billion—almost half as much compared to Q3 when it peaked at an estimated $12 billion.
In an interview with the Wall Street Journal, Senator Elizabeth Warren voiced her concerns about intertwining cryptocurrency with banking systems. She argued that taxpayers should not be taking on responsibility for potential losses due to fraud and money laundering in what she called a highly volatile crypto market.
The collapse of FTX has caused a shockwave throughout the crypto industry, leaving many companies reeling. In the most recent development, cryptocurrency lender Genesis announced they had filed for Chapter 11 bankruptcy protection on January 19th with liabilities estimated to be between $1 billion and $10 billion in value.
