The United States Government Accountability Office (GAO) recently released a preliminary review of the collapse of Signature Bank and Silicon Valley Bank, highlighting the banks’ exposure to deposits from the cryptocurrency industry as part of the issue. In its May 11 report, the GAO cited “poor governance and unsatisfactory risk-management practices” as the primary causes of Signature Bank’s failure in March. While the GAO did not explicitly state that digital assets were the main culprit, the report did acknowledge Signature Bank’s exposure to the crypto industry as a potential contributing factor.
“Signature Bank had exposure to the digital assets industry and declining liquidity in the months prior to failure,” the report stated. FDIC staff noted that Signature Bank management was unable to fully comprehend the bank’s liquidity positions in the hours and days leading up to the collapse. Although crypto-friendly Silvergate Bank was not mentioned in the report, the GAO categorized Signature Bank and Silvergate as “perceived to be similar.” In 2022, Signature Bank held around $12 billion in deposits linked to digital asset firms but had planned to reduce its exposure to the crypto industry.
During a May 11 hearing focused on the oversight of the failed banks, GAO Director of Financial Markets and Community Investment, Michael Clements, revealed that bank regulators had previously identified concerns with Signature Bank and Silicon Valley Bank, but “did not escalate supervisory actions in time.” In response to questions from Tennessee Representative, John Rose, Clements stated that the GAO had examined “large deposits from the digital asset space” to assess whether the crypto industry contributed to Signature Bank’s failure.
“[Signature Bank] was simply holding deposits and operating the accounts,” Clements explained. “Following some of the turmoil in 2022, particularly FTX, some of those deposits did start to fall off.” Regulators have remained divided over the possible connection between crypto exposure and the banks’ collapse. New York Department of Financial Services Superintendent, Adrienne Harris, has reportedly referred to any link as “ludicrous,” arguing that the situation is more akin to a traditional bank run.
As the debate surrounding the role of crypto in the banks’ failure continues, regulators and lawmakers continue to reference the breakdown of Signature Bank, Silicon Valley Bank, and Silvergate Bank in discussions involving the cryptocurrency industry. Following the collapse of these banks, crypto companies such as BlockFi and Gemini issued statements claiming they had sufficient funds to offset exposure or that they held no exposure at all. Despite different views on the matter, the fallout from these collapsed banks continues to be a topic of conversation within the fintech and regulatory spaces.
Source: Cointelegraph
