The United States Federal Home Loan Banks System (FHLB) is currently lending billions of dollars to two major crypto banks to keep them afloat. These are Signature Bank and Silvergate, which are said to have borrowed $ 13 billion from the FHLB to handle the gigantic flow of withdrawals.
What is the FHLB?
The FHLB is a consortium of 11 regional banks across the United States that provide capital to other banks and lending parties. This institution was set up during the Great Depression of the 1930s to support the financial system in times of need. In total, the consortium has $1.1 trillion in assets and 6,500 different members.
According to The Wall Street Journal, it lent a total of $10 billion to Signature Bank, which is Binance’s banking partner, in the last quarter of 2022. The second crypto industry bank to receive significant support from the FHLB is Silvergate Bank, which received at least $3.6 billion in the last quarter of 2022.
Silvergate ran into trouble after seeing significant outflows in the final months of 2022, likely due to the problems at FTX, which collapsed in November 2022. All in all, 2022 was of course also a more than tough year for the industry, in which many parties went under. That misery all started in May 2022 with the implosion of the Terra protocol, with $40 billion worth of assets going up in smoke.
Huge outflow
In total, Silvergate had to report a loss of $1 billion over the past year. The figures show that they had a hard time with the recordings. In total, users withdrew $4.7 billion from the bank in the fourth quarter of 2022. Where they ended the third quarter with $ 12 billion in credits, that had shrunk to $ 7.3 billion in the fourth quarter.
The traditional financial world was initially not touched by the problems in the crypto world, but that is starting to happen. Loans from the FHLB to the crypto industry are a good example of this. According to The Wall Street Journal, and indeed also the IMF, this increases the chance that the problems within crypto will also affect the traditional financial world. At the moment, these are still relatively small amounts, but that may change in the future.