According to a report that was published by The Wall Street Journal on January 21, the Federal Home Loan Banks System (FHLB) of the United States is reportedly lending billions of dollars to two of the largest cryptocurrency banks in an effort to mitigate the effects of a surge in withdrawals. This move was made in response to the surge in demand for cryptocurrency withdrawals. The Federal Home Loan Bank is a group of 11 different regional banks from all around the United States that work together to lend money to other financial institutions.
The system, which was established in the midst of the Great Depression to provide assistance for home financing, now has over 6,500 members and 1.1 trillion dollars in assets.
According to reports, during the last three months of 2022, the organisation extended a loan of about $10 billion to the commercial bank Signature Bank, making it one of the biggest deals involving a bank borrowing money in recent years.
The Signature’s blockchain-based digital platform was given the go-ahead by the New York Department of Financial Services in the year 2018.
The study compiled by Silvergate indicates that the average deposits made by digital asset customers during the fourth quarter of 2022 were $7.3 billion. This figure represents a considerable decrease when compared to the amount attained during the third quarter, which was $12 billion.
Following the failure of FTX, traditional finance has been immune to crypto contagion; but, according to the paper, FHLB loans to crypto-exposed institutions might raise that risk.
Senator Elizabeth Warren made the following statement to the WSJ: “this is why I’ve been warning of the dangers of allowing crypto to become intertwined with the banking system.” She claimed that taxpayers should not “be left holding the bag for collapses in the crypto industry,” which she referred to as a market that is full of “fraud, money laundering, and illicit finance.” Senator Warren is a member of the Democratic Party.
The bankruptcy of the FTX group produced a ripple effect across the cryptocurrency business, which affected a number of other firms.
The most recent event to take place was on January 19, when cryptocurrency lender Genesis filed a petition for protection under Chapter 11 of the Bankruptcy Code. Genesis is reported to have liabilities ranging between $1 billion and $10 billion.