US Home Loan Banks Sent Billions to Crypto Banks
- The United States Federal Home Loan Banks System (FHLB) has lent billions of dollars to two of the largest crypto banks.
- Signature Bank and Silvergate have received over $10 billion and $3.5 billion from FHLB respectively.
- Signature will only handle user transactions of more than $100,000 as it plans to decrease its exposure to digital asset markets.
- Silvergate reported a loss of $1 billion in the fourth quarter of 2022 as user deposits lessened in valued.
The impact that crypto firms have had on the world of traditional finance has ranged from technologically sound to financial ruin. This is because the price of almost all the blockchain-based coins has plunged significantly in the past few months, and the projects that seemed promising are now worth a fraction of what they used to be. Many blockchain projects are also dead, and many have closed a part of their business to focus on their core model.
Interestingly, as per a report from the Wall Street Journal (WSJ), the United States Federal Home Loan Banks System (FHLB) has lent billions of dollars to two of the largest cryptocurrency banks, i.e., Signature Bank and Silvergate, so that these banks do not suffer the aftereffects of a surge in withdrawals from their platforms. There has been a surge in withdrawals following the collapse of multiple crypto firms in 2022, as investors have lost faith in blockchain platforms.
The FHLB comprises 11 regional banks across the United States, and it is responsible for the funding of other banks and lenders that are operating in the country. This system was founded during the Great Depression and has $1.1 trillion in assets and over 6,500 members. Interestingly, the main motive of the organization is to support housing finance.
The consortium of 11 banks has lent over $10 billion to Signature Bank, a New York-based bank that had billions in deposits. This is one of the biggest loans taken by a bank in recent years. In the light of similar events, it is crucial to note that Signature will only handle user transactions of more than $100,000 as it plans to decrease its exposure to digital asset markets.
According to a Bloomberg report, the world’s largest crypto exchange, Binance, confirmed that Signature Bank, which is one of the partner banks of the exchange, “will no longer support any of its crypto exchange customers with buying and selling amounts of less than 100,000 USD as of February 1, 2023.”
“This is the case for all of their crypto exchange clients. As a result, some individual users may not be able to use SWIFT bank transfers to buy or sell crypto with/for USD for amounts less than 100,000 USD,” Binance said in a statement sent to Bloomberg News on Saturday.
On the other hand, the second bank to borrow money from the FHLB is Silvergate, and reportedly, it received at least $3.6 billion from the entity. The crypto bank witnessed significant outflows and, as a result, decided to borrow money to prevent a liquidity crunch.
Moreover, according to the crypto bank’s revenue filings, the total crypto deposit for the fourth quarter of 2022 at the firm was $7.3 billion, which was much lower than the previous quarter when Silvergate held almost $12 billion. The company also reported a loss of $1 billion in the fourth quarter.
A crypto journalist with over 3 years of experience in DeFi, NFT, metaverse, etc. Parth has worked with major media outlets in the crypto and finance world and has gained experience and expertise in crypto culture after surviving bear and bull markets over the years.
