According to The Wall Street Journal, January 21, a report claims that the Federal Home Loan Banks System in the United States (FHLB), has loaned billions of dollars in an attempt to reduce withdrawals. This was in response to an increase in demand for cryptocurrency withdrawals. Federal Home Loan Bank is an alliance of 11 regional banks from across the United States, which lend money to each other.
The system, which was set up in the Great Depression as a way to assist with home financing, has now attracted over 6,500 members, and has 1.1 trillion in assets.
According to reports the bank extended a loan of approximately $10 billion to Signature Bank during the third quarter of 2022. It is believed to be one of the largest deals involving banks borrowing money in recent times.
In 2018, the New York Department of Financial Services gave the green light to the Signature’s digital platform that is blockchain-based.
Silvergate has compiled a study that shows digital asset customers made an average of $7.3 billion in deposits during the fourth-quarter 2022. This is a significant decrease compared to the $12 billion attained in the third quarter.
Traditional finance was immune to crypto contagion after the collapse of FTX; however, FHLB loans to institutions crypto-exposed might increase that risk.
Senator Elizabeth Warren stated the following to the WSJ: “This is why I have been warning about the dangers of allowing cryptocurrency to become intertwined avec the banking system.” She stated that the taxpayers shouldn’t be “left holding the bag for collapses of the crypto industry.” She referred to it as a market full of fraud, money laundering and illicit finance. Senator Warren is a member the Democratic Party.
The collapse of the FTX group had a ripple impact on the cryptocurrency market, which affected a few other companies.
On January 19, Genesis, a cryptocurrency lender filed a petition under Chapter 11 of Chapter 11 to receive protection. Genesis is said to have liability amounts ranging from $1 billion to $10 billion.