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