The FHLB: A Brief Overview

The Federal Home Loan Banks System (FHLB) consists of 11 regional banks scattered across the United States, originally established during the Great Depression to boost housing financing. With a whooping $1.1 trillion in assets and over 6,500 members, the FHLB continues to play a significant role in stabilizing the financial landscape.

Big Loans to Big Crypto Players

Recently, the FHLB has found itself in the spotlight, lending billions to cryptocurrency banks facing sudden withdrawals. Signature Bank received nearly $10 billion—an eye-popping amount and possibly one of the largest borrowings in recent banking history. This bank has been on the cutting edge, having launched a blockchain-based digital platform approved by New York’s Department of Financial Services back in 2018.

Silvergate: The Not-So-Sweet Silver Lining

Not wanting to be left in the dust, Silvergate secured at least $3.6 billion from the FHLB amidst a whirlpool of deposits slipping through their fingers. With deposits dropping to $7.3 billion from the previous quarter’s $12 billion, the bank has been forced to take drastic measures, including selling off debt securities. Their recent financial report, which revealed a staggering net loss of $1 billion for common shareholders, shows just how precarious the situation has become.

Traditional Finance vs. Cryptocurrency

While traditional finance has largely sidestepped the crypto contagion following the disastrous FTX collapse, FHLB’s loans to crypto-exposed banks may raise red flags. Senator Elizabeth Warren has voiced her concerns, warning that intertwining crypto with the banking system could put taxpayers at risk, expressing her fears over the potential fraudulent activities and financial misdeeds in the cryptocurrency realm.

The Ripple Effects of FTX’s Collapse

The fallout from FTX’s collapse continues to shake the crypto world, with the recent filing of Chapter 11 bankruptcy by crypto lender Genesis, which carries liabilities estimated between $1 billion and $10 billion. The shake-up highlights the volatility of the crypto market and raises questions about the future of banking relationships with digital asset firms.