U.S. mortgage lenders gave crypto banks billions of dollars: Report

According to a Jan. 21 article in the newspaper, the Federal Home Loan Banks System (FHLB) of the United States is financing billions of dollars to two of the biggest cryptocurrency banks in an effort to lessen the impact of a spike in withdrawals.

Over $13 billion in house loans were reportedly taken out by Signature Bank and Silvergate

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 company is said to have made a nearly $10 billion loan to the commercial bank Signature Bank in the final quarter of 2022, making it one of the biggest bank borrowing deals in recent memory. The New York Department of Financial Services gave the Signature permission to use blockchain technology for its digital platform in 2018.

Silvergate, which requested at least $3.6 billion from the FHLB, was the second bank to submit a request. Silvergate experienced huge deposit outflows in the last quarter of 2022 and responded by selling debt instruments among other things to maintain cash liquidity. According to the public reporter, the total net loss attributable to common shareholders over the time was $1 billion.

In contrast to the previous quarter, when deposits hit $12 billion, the average digital asset customer deposit in the fourth quarter of 2022 was $7.3 billion, per Silvergate’s study.

Following the demise of FTX, traditional finance has been immune to the crypto contagion, but the paper warns that FHLB loans to banks with exposure to the cryptocurrency could raise that risk.

Senator Elizabeth Warren stated in remarks to journalist that

“this is why I’ve been warning of the dangers of allowing crypto to become intertwined with the banking system,” asserting that taxpayers should not “be left holding the bag for collapses in the crypto industry,” which she called a market full of “fraud, money laundering, and illicit finance.”

Many businesses were impacted by the collapse of the FTX group, which had an impact on the entire crypto industry. In the most recent development, cryptocurrency lender Genesis, whose liabilities are estimated to be between $1 billion and $10 billion, filed for Chapter 11 bankruptcy protection on January 19.

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