Silvergate Bank, which has total assets of 12 billion dollars (approximately 1.62 trillion yen, converted to 135 yen to the dollar), announced voluntary liquidation on March 8. Silicon Valley Bank, which has total assets of $200 billion (approximately ¥27 trillion), was transferred to the US Federal Deposit Insurance Corporation (FDIC) on the 10th. Signature Bank, with total assets of $100 billion, was shut down by the New York State Department of Financial Services (NYDFS) on Wednesday.
All of these banks had crypto-related customers. The depth of involvement with the crypto-asset industry differed, but Silvergate in particular had multiple crypto-asset exchanges as customers and operated a crypto-asset instant payment network that could be used between customers 24 hours a day, 365 days a year. .
The bankruptcy of FTX weighed on Silvergate’s operations, and a letter sent to the bank by Senator Elizabeth Warren last year soured the public’s perception of Silvergate. The Biden administration has also expressed concern.
So Silvergate, contrary to what Senator Warren claims, was not the crypto industry’s fault, but at least in part because of a bank run facilitated by the U.S. government.
In particular, it should not be overlooked that the eventual liquidation of Silvergate was voluntary and that “full return of all deposits” is planned.
Silicon Valley Bank
Shortly after news of Silvergate Bank’s voluntary liquidation, Silicon Valley banks also faced bank runs and moved under FDIC control. This bank run is a combination of lax risk management by Silicon Valley banks in investing customer deposits in the wrong financial instruments (such as long-maturity US Treasuries and securities backed by the wrong type of mortgage). It was sparked by a sense of insecurity spread by venture capitalists with large financial stakes in many of the bank’s client companies.
Reuters also reported that credit rating agency Moody’s is preparing to downgrade Silicon Valley Bank. In response to the report, Silicon Valley Bank reportedly sought advice from Goldman Sachs.
Silicon Valley Bank suffered losses after selling $20 billion in bonds over the weekend. It tried to fill the void by issuing shares. But in the end it failed and Silicon Valley Bank no longer exists. It feels like 2007, doesn’t it?
But notice that Silicon Valley Bank relied more on Silicon Valley startups than on crypto companies.
And on the 12th, Signature Bank was shut down by the NYDFS.
Signature Bank, like Silvergate, was seen as a crypto-friendly bank. But Barney Frank, the former chairman of the US House Financial Services Committee and the originator of the “Dodd-Frank Act” for financial regulation, said customers overestimated Signature Bank’s involvement with crypto assets. said he might have been. As for why Frank knew this, surprisingly he is on the board of Signature.
Frank also noted that Signature could have remained a going concern. After customers withdrew more than $10 billion (about 1.35 trillion yen) on the 10th, NYDFS decided to suspend operations, and the bank was transferred to the FDIC on the 12th.
Criticism of crypto assets
Let’s put the Silver Gate aside for now. Much less systemic risk to the broader banking system than Silicon Valley banks or signature banks. It is much smaller and receives no government support.
Silicon Valley banks and signature banks have some very interesting similarities. Media and citizens blame cryptocurrencies for two bank failures.
But this is not true.
Even Frank suggested that it was not a crypto problem, but a message about the crypto problem, saying:
“I think the regulators wanted to send a very strong anti-crypto message… Based on the fundamentals, Signature was not insolvent, and we were made to be the posters for that message. “
These bank failures are the result of poor risk management of customer deposits and subsequent bank runs. In the first place, it is clearly wrong to think that cryptocurrency companies that struggle to establish business relationships with banks will drive the banking system into bankruptcy. The cryptocurrency industry is not the real estate industry.
The crypto industry has a banking problem, but the banking industry does not have a crypto problem.
｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Original: The Banking Crisis Is Not Crypto’s Fault
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