According to a report published by The Wall Street Journal on Jan. 21, the United States Federal Home Loan Banking System (FHLB) is lending billions of dollars to two of the largest cryptocurrency banks in an effort to to mitigate the effects of an increase in withdrawals. This move was made in response to increased demand for cryptocurrency withdrawals. The Federal Home Loan Bank is a group of 11 different regional banks across the United States that work together to lend money to other financial institutions.

The system, which was established in the midst of the Great Depression to provide home finance assistance, now has more than 6,500 members and $1.1 trillion in assets.

During the last three months of 2022, the organization reportedly provided a loan of around $10 billion to commercial bank Signature Bank, making it one of the largest deals involving lending money from a bank in the last years.

Signature’s blockchain-based digital platform received the go-ahead from the New York Department of Financial Services in 2018.

The study compiled by Silvergate indicates that the average deposits made by digital asset customers during the fourth quarter of 2022 were $7.3 billion. This figure represents a considerable decrease when compared to the amount reached during the third quarter, which was $12 billion.

Following the FTX failure, traditional finance has been immune to crypto contagion; but, according to the document, FHLB loans to crypto-exposed institutions could increase that risk.

Senator Elizabeth Warren made the following statement to the WSJ: “this is why I have been warning about the dangers of allowing cryptocurrencies to become intertwined with the banking system.” She asserted that taxpayers should not “pocket the bag for collapses in the crypto industry,” which she referred to as a market full of “fraud, money laundering, and illicit finance.” Senator Warren is a member of the Democratic Party.

The bankruptcy of the FTX group produced a domino effect in the cryptocurrency business, which affected other companies.

The most recent event to take place was on January 19, when cryptocurrency lender Genesis filed for protection under Chapter 11 of the Bankruptcy Code. Genesis is reported to have liabilities ranging from $1 billion to $10 billion.