Silvergate Capital and Signature Bank began losing deposits when crypto prices collapsed and FTX, one of the industry’s largest exchanges, filed for bankruptcy.

Two of the largest banks catering to cryptocurrency companies, Signature Bank (NASDAQ: SBNY) and Silvergate Capital Corp, (NYSE: SI) have taken loans of billions of dollars from Federal Home Loan Banks to stem a flood of customer withdrawals.

Signature Bank borrowed nearly $10 billion in the fourth quarter, while Silvergate Capital Corp. borrowed at least $3.6 billion.

These borrowings are in response to the collapse of the cryptocurrency market in 2022 and the resulting loss of customer deposits. (WSJ)

The WSJ reported earlier this month that Silvergate was forced to sell assets at a steep loss to cover some $8.1 billion in withdrawals. The bank also laid off 40% of its staff and shelved plans to launch its own digital currency, writing off $196 million it spent buying the technology.

Some observers have criticized this use of the home-loan bank system, originally designed to support mortgage lending, to backstop the crypto industry’s fallout, calling it far removed from the original intent and a potential burden on taxpayers.

Comprising 11 government-chartered cooperatives, Federal Home Loan Banks, also known as FHLBs, were established to provide housing finance during the Great Depression. Now they also act as liquidity providers into the banking system, using their implicit government backing to borrow money cheaply.

However, this safety net to the crypto industry, in billions of dollars as aforementioned, met with strong opposition from Sen. Elizabeth Warren (D., Mass.): “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.”

Related Story: More Crypto Players Follow FTX Down The Bankruptcy Route

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