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One of the largest American banking consortium comes to the aid of two crypto banks

Signature Bank and Silvergate, two of the largest banks in the crypto space, have benefited from multi-billion dollar loans from the Federal Home Loan Banks, a system originally designed to support housing finance and community investment .

According to an article published by the Wall Street Journal on Saturday, Signature Bank received nearly $10 billion in loans from its local housing loan bank in the last quarter of 2022, while Silvergate received at least 3.6 billions of dollars.

Signature's loans are more than double the highest amount the bank has received in several years, while 2022 was the first year Silvergate tapped Federal Home Loan Banks, according to the WSJ.

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

While FHLBs lending to other financial institutions is nothing out of the ordinary, some market participants have warned that lending to banks exposed to cryptocurrencies could spread difficulties of the crypto industry to traditional financial companies (TradFi).

Senator Elizabeth Warren, who has been an outspoken critic of the crypto industry, has expressed concern over the growing relationship between banks exposed to cryptocurrencies and TradFi companies. In a comment to the WSJ, she said:

“That is why I have warned of the dangers of allowing the crypto industry to have a close relationship with the banking system. collapse of the crypto industry, a market rife with fraud, money laundering and illicit financing."

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

As we reported, Silvergate suffered a "bank run" after the FTX bankruptcy. The crypto bank was also forced to proceed with the sale of $5.2 billion of debt securities it held on its balance sheet, at a loss, to cover around $8.1 billion in withdrawals from its customers. users. As a result, it recorded a loss of $718 million, an amount that would exceed the bank's total profits since 2013.

Additionally, Silvergate had only $3.8 billion in deposits at the end of 2022, compared to $11.9 billion in 2021. Similarly, Signature deposits fell below the $89 billion mark. last year, up from nearly $103 billion at the start of 2022.

Recent developments in the crypto market have also caused some banks to exit the crypto space. Moonstone Bank, a digital bank specializing in services to wealthy individuals, is one of them and has announced that it will refocus on the role of "community bank".

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