• Signature Bank and Silvergate, two of the biggest crypto banks, have received billions in loans from the Federal Home Loan Banks.
• The Federal Home Loan Banks are 11 US government-sponsored banks that provide loans to institutions and were originally designed to support housing finance and community investment.
• Senator Elizabeth Warren has voiced concern about the growing relationship between crypto-exposed banks and traditional finance companies, warning of the dangers of allowing crypto to become intertwined with the banking system.
The crypto banking industry has seen a major boost in recent months as two of the biggest crypto banks, Signature Bank and Silvergate, have received billions in loans from the Federal Home Loan Banks (FHLB). The FHLB is a system of 11 US government-sponsored banks that provide loans to institutions and was originally designed to support housing finance and community investment.
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. This marks the first time that Silvergate has ever tapped into the home-loan banks. The loans to Signature Bank are more than double their previous record high sum in several years.
The decision to provide loans to crypto-exposed banks has caused concern among some market participants who fear that lending to such banks could lead to the crypto contagion spreading to traditional finance companies too. Senator Elizabeth Warren has been a vocal critic of the crypto industry and has expressed her worries regarding this issue. In comments to the Wall Street Journal, 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.”
The loans to Signature Bank and Silvergate from the FHLB have come as a surprise to many in the crypto industry. It is a sign that the government may be slowly beginning to recognize the potential that cryptocurrencies have and is willing to invest in them. However, it is also important to note that Senator Warren’s comments highlight the importance of regulating the crypto industry and ensuring that it is not used for illicit activities. This is an issue that must be addressed if the crypto industry is to continue to grow and gain mainstream acceptance.