In the aftermath of a string of high-profile bank collapses in the United States, regulatory agencies are acknowledging the errors they have made. Internal evaluations of how each organization dealt with Signature Bank and Silicon Valley Bank (SVB) have been made public by the New York Department of Financial Services (NYDFS) and the Federal Reserve Board of the United States, respectively. Both banks were shut down in March of this year, with the New York Department of Financial Services taking action against Signature Bank on March 12 and authorities in California closing SVB only two days earlier on March 10. The collapses occurred shortly after the news of the voluntary liquidation of crypto-friendly Silvergate Bank on March 8th, which spurred runs on the impacted institutions and ultimately led to the failures.
The collapse of these banks has sent shockwaves across the business, and as a result, Vice President Joe Biden of the United States sent out a statement to the situation through Twitter. The Federal Reserve study concluded that SVB’s management had failed to adequately manage its risks, and that the bank’s supervisors had “not fully appreciated the extent of the vulnerabilities” of the bank as it increased in size and complexity. Both of these findings were uncovered as a result of the Fed’s investigation. Regulators had not taken enough action to resolve SVB’s fundamental issues despite the fact that these issues were pervasive and well-known.
Similar problems were discovered during the investigation conducted by the NYDFS on Signature Bank. These problems include inadequacies in the bank’s risk management policies and inadequate oversight of third-party suppliers. In addition, the study included criticism directed at the board of directors of the bank for their lack of action to address these concerns.
These failures have caused regulators to reexamine their monitoring processes, and several have called for a more proactive approach to risk management as a result of their findings. Concerns have also been raised about the possibility that the failures are an indication of more widespread systemic problems within the banking sector.
Moving ahead, it is probable that regulatory agencies will continue to monitor the banking sector with an even closer eye in an attempt to reduce the likelihood of failures that are analogous to those that have occurred in the past. This may include more stringent requirements for risk management practices, increased oversight of third-party vendors, and more stringent regulatory enforcement actions taken against banks that fail to meet their obligations. At the end of the day, the expectation is that these precautions will assist in protecting the financial system and preventing new crises from arising.
Regulators in the United States have been prompted to re-evaluate their supervision after the high-profile failures of Signature Bank, Silicon Valley Bank (SVB), and Silvergate Bank. The New York Department of Financial Services (NYDFS) and the US Federal Reserve Board have both published their internal reviews on the handling of the failures, which occurred in March.
SVB was closed by California regulators on March 10, and Signature Bank was moved against by the NYDFS on March 12. Silvergate Bank had announced its voluntary liquidation on March 8, setting off runs on the banks. The string of bank failures sent shockwaves through the financial industry, with U.S. President Joe Biden even feeling the need to tweet a response.
The Fed review of SVB’s failure found that the bank’s management failed to manage its risks, and supervisors “did not fully appreciate the extent of the vulnerabilities” of the bank as it “grew in size and complexity.” The report noted that “SVB’s foundational problems were widespread and well-known.”
The NYDFS review of Signature Bank’s failure highlighted areas where the regulator’s supervision could have been more effective. The report noted that the bank’s risk management and compliance programs were not adequate, and that the bank had a “lack of clarity” on its risk appetite.
The failures of these banks have prompted US regulators to re-evaluate their supervision of financial institutions. The NYDFS and the Fed have both acknowledged the need for improvements in their supervision and have pledged to take action to strengthen their oversight.
The failures have also raised concerns about the risks associated with banks that are friendly towards cryptocurrency. Both SVB and Silvergate Bank were known for their crypto-friendly policies, and some have speculated that their failures may be linked to their exposure to the volatile cryptocurrency market.
Overall, the failures of Signature Bank, SVB, and Silvergate Bank have highlighted the need for stronger regulatory oversight of financial institutions. While the NYDFS and the Fed have acknowledged the need for improvements in their supervision, it remains to be seen whether these improvements will be enough to prevent future bank failures.
The banking industry has been facing risks from uninsured deposit withdrawals, with almost 190 banks at a potential risk of impairment to insured depositors and potentially $300 billion of insured depositors at risk, as revealed by economists’ analysis. In the meantime, Representative Tom Emmer has warned the FDIC that its actions to purge legal crypto activity from the US are “deeply inappropriate” and could lead to broader financial instability. Furthermore, the US Federal Reserve announced a review of the supervision and regulation of Silicon Valley Bank in light of its failure, which will be released for public review by May 1.
The MBCA’s request to extend deposit insurance is aimed at reducing the risk of bank failures, which could potentially harm the entire banking industry. The proposal to fund the insurance program by raising deposit-insurance assessment on lenders who opt to participate in the increased coverage is a significant move towards ensuring stability in the banking industry. The economists’ analysis shows that there is a potential risk to insured depositors if uninsured depositors decide to withdraw their deposits. If this occurs, almost 190 banks would be at risk, and insured depositors could face a potential loss of up to $300 billion.
Representative Tom Emmer’s letter to the FDIC Chair raises concerns over reports that the FDIC is “weaponizing recent instability” in the banking sector to “purge legal crypto activity” from the US. Emmer argues that these actions are “deeply inappropriate” and could lead to broader financial instability. This concern over broader financial instability is further highlighted by the Federal Reserve’s announcement of a review of the supervision and regulation of Silicon Valley Bank in light of its failure. The review’s public release by May 1 shows that the Federal Reserve is taking steps to ensure that the banking industry remains stable and secure.
In conclusion, the MBCA’s request for an extension of deposit insurance is an important step towards ensuring stability in the banking industry. The proposal to fund the insurance program by raising deposit-insurance assessment on lenders who opt to participate in the increased coverage could provide banks with the necessary funds to ensure that they can meet the demands of their customers. The concern over broader financial instability, raised by Representative Tom Emmer, and the Federal Reserve’s review of the supervision and regulation of Silicon Valley Bank, highlights the need for continued vigilance to ensure the stability and security of the banking industry.
The recent failures of banks providing services to crypto firms in the United States have raised concerns in the crypto community about a perceived “de-banking” of the industry. In response, the Blockchain Association has called on financial regulators to provide information about their actions in relation to the banks’ failures. The association has submitted Freedom of Information Act requests to the Federal Deposit Insurance Corporation, the board of governors of the Federal Reserve System, and the Office of the Comptroller of the Currency, seeking documents and communications that could potentially show if regulators’ actions “improperly contributed” to the banks’ collapse.
The Blockchain Association believes that crypto firms should be treated like any other law-abiding business in the U.S. and given access to bank accounts. The association is investigating allegations of account closures and refusals to open new accounts by banks against crypto firms, which it believes are part of a wider trend of de-banking the industry.
The recent banking crisis in the crypto industry began with the announcement by Silvergate’s parent company on March 8 that it would “wind down operations” for the crypto bank. This was followed by Silicon Valley Bank’s own failure after a run on deposits on March 10, and the closure of Signature Bank on March 12 by regulators. Some in the crypto community believe that federal regulators’ perceived attack on banks servicing crypto firms could force companies to turn to “shadier” options.
Prior to its closure, Signature Bank was considered a major crypto-friendly bank in the U.S., providing services to Coinbase, Paxos Trust, BitGo, and Celsius. The FDIC’s resolution handbook states that an acquirer tells the FDIC what assets and liabilities from the failed bank it is willing to take, as well as what (if any) money will change hands.
Former U.S. Representative and Signature board member Barney Frank reportedly claimed the FDIC was sending a “strong anti-crypto message” in shutting down the bank, and some lawmakers are demanding answers. The recent actions by regulators have prompted concerns in the crypto community about the potential for a wider crackdown on the industry by regulators. The Blockchain Association’s calls for transparency from financial regulators are part of wider efforts to ensure that crypto firms are treated fairly and given access to banking services like any other business.