Is The Federal Home Loans Bank System Carrying Out a Stealth Rescue of the 2 Biggest Crypto Banks?

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Signature
Bank
and
Silvergate,
two
of
the
biggest
crypto
banks,
have
received
billions
in
loans
from
the
Federal
Home
Loan
Banks,
a
system
originally
designed
to
support
housing
finance
and
community
investment.

According
to
a
Saturday report from
The
Wall
Street
Journal,
Signature
Bank
received
nearly
$10
billion
in
loans
from
its
local
home-loan
bank
in
the
last
quarter
of
2022
while
Silvergate
received
at
least
$3.6
billion.

Signature’s
loans
are
more
than
double
its
previous
highest
sum
in
several
years,
while
2022
marked
the
first
year
for
Silvergate
to
tap
home-loan
banks,
the
report
said. 

The
Federal
Home
Loan
Banks
are
11
US
government-sponsored
banks
that
provide
loans
to
institutions.
Founded
during
the
Great
Depression,
the
system
has
$1.1
trillion
in
assets
and
over
6,500
members
and
was
originally
designed
to
support
housing
finance
and
community
investment. 

While
FHLBs
providing
loans
to
other
financial
institutions
is
nothing
out
of
the
norm,
some
market
participants
have
warned
that
lending
to
crypto-exposed
banks
could
lead
to
the
crypto
contagion
spreading
to
traditional
finance
companies
too. 

Senator
Elizabeth
Warren,
who
has
been
a
vocal
critic
of
the
crypto
industry,
has
voiced
concern
regarding
the
growing
relationship
between
crypto-exposed
banks
and
TradFi
companies.
In
comments
to
the
WSJ,
she
said:

“This
is
why
I’ve
been
warning
of
the
dangers
of
allowing
crypto
to
become
intertwined
with
the
banking
system.
Under
no
circumstance
should
taxpayers
be
left
holding
the
bag
for
collapses
in
the
crypto
industry—a
market
brimming
with
fraud,
money
laundering
and
illicit
finance.”

Signature
Bank
and
Silvergate
turned
to
home-loan
banks
last
year
following
the
collapse
of
cryptocurrency
exchange
FTX,
which
eroded
user
trust
in
the
industry
and
led
to
a
surge
in
withdrawals. 

As
reported,
Silvergate suffered
a
bank
run following
the
collapse
of
FTX.
Aside
from
taking
loans,
the
crypto
bank
also
had
to
sell
$5.2
billion
of
debt
securities
it
was
holding
on
its
balance
sheet
at
a
significant
loss
to
cover
around
$8.1
billion
in
user
withdrawals.
As
a
result,
it
incurred
a
$718
million
loss,
which
reportedly
exceeds
the
bank’s
total
profits
since
2013.

Furthermore,
Silvergate
had
only
$3.8
billion
of
deposits
at
the
end
of
2022,
compared
to
$11.9
billion
in
2021.
Likewise,
deposits
at
Signature
dropped
below
$89
billion
last
year
from
nearly
$103
billion
at
the
start
of
2022. 

The
recent
developments
in
the
crypto
market
have
also
pushed
some
banks
to
exit
the
crypto
space.
Moonstone
Bank,
a
digital
bank
focused
on
serving
high-net-worth
individuals,
is
one
such
bank,
which
has announced that
it
will
be
refocusing
on
the
“community
bank”
role.