To blame crypto, or not to blame crypto, on March’s bank failures?
Regulators are at odds with each other over what was at fault for the failures of Silvergate Bank, Silicon Valley Bank and Signature Bank, all within a week’s time last month.
The banks were highly exposed to cryptocurrency, and Securities and Exchange Commission Chair Gary Gensler told the House Financial Services Committee on Tuesday that that exposure is directly linked to the banks’ failures.
“Silvergate and Signature [banks] were engaged in the crypto business — I mean, some would say that they were crypto-backed,” Gensler said.
He also noted that Circle held $3 billion in reserves for USDC, a prominent stablecoin, with Silicon Valley Bank.
New York State Department of Financial Services Superintendent Adrienne Harris, however, countered Gensler on Wednesday in a hearing on stablecoins in front of the same committee.
“It is a misnomer that the failure of Signature Bank was related to crypto,” she said, instead blaming the outflows from various types of depositors, including law firms and wholesale food vendors. Crypto clients made up about one-fifth of the bank run that led to regulators’ closure of the bank.
“The outflow of crypto deposits were in exact proportion to the representation in the depositor base overall,” Harris said.
Following the closure of Signature, bank board member and former Rep. Barney Frank, D-MA, told CNBC he believed “part of what happened was that regulators wanted to send a very strong anti-crypto message.”
“We became the poster boy because there was no insolvency based on the fundamentals,” he said.
Frank, one of the namesakes of the Dodd-Frank Act that followed the 2007-08 financial crisis, said Signature’s deposit run was “purely contagion from SVB,” and that there was “no real objective reason” for regulators to seize Signature.
Some crypto faithfuls have suggested that U.S. banking regulators have it out for digital assets.
The Blockchain Association, a crypto trade group whose members include Kraken and Anchorage Digital, announced last week that it had submitted Freedom of Information Act requests to investigate the disintegration of crypto firms into the traditional banking sector.
BA seeks “to understand whether the closure of Signature Bank was the result of the bank’s insolvency or a decision to send an anti-crypto message despite the bank being fully solvent,” according to a release.
The association is also investigating whether Silvergate’s failure was “the result of a politically-motivated decision by the Federal Home Loan Bank of San Francisco, which is overseen by the FHFA, to take the extraordinary and unusual action of pulling a loan made to Silvergate only months earlier.”