The banking crisis is not crypto’s fault
This article is taken from The Node, CoinDesk’s daily roundup of the top stories in blockchain and crypto news. You can subscribe to get the whole newsletter here.
All of these banks served some crypto clients. Some served more than others. Silvergate, in particular, bankrolled several crypto exchanges and operated a 24/7 instant settlement network among Silvergate clients. The collapse of FTX weighed on Silvergate, and a scathing letter sent by U.S. Sen. Elizabeth Warren (D-Mass.) to the bank’s executives late last year partly weakened public perception of the bank. The Biden administration also expressed concern.
So Silvergate was run into the ground by a classic bank run that was at least partially encouraged by the US government and not because of crypto (although Senator Warren maintains that it was). Especially when you consider that Silvergate’s liquidation was ultimately voluntary and the plan includes a “full refund of all deposits.”
Adding more fuel to the SVB fire – Reuters reported over the weekend that credit rating agency Moody’s was preparing to downgrade SVB’s credit rating, potentially forcing SVB to deal with risks like this. On the downgrade news, SVB reportedly looked to Goldman Sachs for advice.
SVB then sold $20 billion in bonds over a weekend, producing a loss, and then aimed to fill the gap by raising equity. That share offer failed and now SVB no longer exists. (This is starting to smell like 2007, isn’t it?)
However, note that SVB is more dependent on Silicon Valley startups than on crypto companies.
Frank also adds that Signature could have remained a going concern. Apparently, regulators disagreed after customers withdrew more than $10 billion in deposits on Friday and Signature was taken over by the FDIC on Sunday.
Even Barney Frank suggested that it wasn’t necessarily a crypto problem, but a message about a crypto problem. He told CNBC: “I think 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.”
Each of these failures is the result of poor risk management of customer deposits and a subsequent bank run. To take a step back and suggest that a single asset class, whose companies have trouble getting banking services in the first place, would be able to single-handedly take down the banking system is patently absurd. What is this? Property?
Crypto has a banking problem, but banking doesn’t have a crypto problem.
