The US Federal Home Loan Banking System (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 report. from The Wall Street Journal on January 21.

The FHLB is a consortium of 11 regional banks in the United States 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.

The entity reportedly lent nearly $10 billion to commercial bank Signature Bank in the last quarter of 2022, making it one of the largest loan transactions 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 FHLB funds was Silvergate, receiving at least $3.6 billion. In the last quarter of 2022, Silvergate experienced significant deposit outflows and took steps to maintain cash liquidity, including the sale of debt securities. The net loss attributable to common shareholders in the period totaled $1 billion, Cointelegraph reported.

Related: BIS proposes a research model to study the integration of DeFi with TradFi and its risks

According to Silvergate’s report, average digital asset customer deposits in Q4 2022 were $7.3 billion, down significantly from the prior quarter when deposits reached $12 billion.

Traditional finance has remained immune to crypto contagion following the FTX collapse, but FHLB lending to crypto-exposed banks could increase that risk, the report notes.

In comments to WSJ, Senator Elizabeth Warren noted that “this is why I have been warning about the dangers of allowing cryptocurrencies to become entwined with the banking system,” stating that taxpayers should not “be left to blame for collapses in cryptocurrencies”. industry,” which she called a market rife with “fraud, money laundering, and illicit finance.”

The collapse of the FTX group caused a ripple effect in the crypto industry, affecting many companies. In the most recent development, crypto lender Genesis filed for Chapter 11 bankruptcy protection on Jan. 19, with liabilities estimated between $1 billion and $10 billion.

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