Federal Reserve Admits Blindsided Oversight of SVB Collapse

The recent collapse of Silicon Valley Bank (SVB) has prompted an internal investigation by the Federal Reserve to look into the failure of the bank and the Fed’s regulation of it. Federal Reserve Chairman Jerome Powell has admitted to being blindsided by the sudden collapse of SVB despite being under their supervision. This has raised concerns about the effectiveness of the Federal Reserve’s oversight of banks in the United States.

SVB’s collapse has been linked to the Federal Reserve’s successive interest rate hikes aimed at taming inflation, which eroded SVB’s long-term bonds purchased at near-zero rates. When SVB announced that it suffered a $1.8 billion after-tax loss and was looking to raise $2.25 billion, the market panicked, leading to a $160 billion wipeout in its market cap in 24 hours. Despite SVB CEO Greg Becker urging investors to “stay calm” and not to “panic”, depositors began to request withdrawals from SVB en masse, causing a bank run.

On March 10, the United States Federal Deposit Insurance Commission stepped in, taking possession of SVB to help depositors get access to their money. Emergency measures were put in place by the government soon after to guarantee all deposits at SVB. This has raised concerns about the stability of the banking system and the need for stronger regulatory measures to prevent such occurrences in the future.

Powell has confirmed that Vice Chairman Michael Barr will be testifying next week as part of the internal investigation. Powell’s interest is in identifying what went wrong and how it can be prevented in the future. However, some politicians, including U.S. Senator Elizabeth Warren, have expressed their frustration with Powell and his regulatory approach toward large banks in the U.S. over the last five years, which they believe has been weak.

Warren believes that Powell’s nine consecutive interest rate hikes to 5% pose a risk to the economy, potentially pushing it into a recession. She has also criticized Powell’s approach to banking regulation, stating that it is a factor to blame for the recent banking crisis. The collapse of SVB has highlighted the need for stronger regulatory measures to ensure the stability of the banking system and prevent future occurrences.

In conclusion, the collapse of Silicon Valley Bank has raised concerns about the effectiveness of the Federal Reserve’s oversight of banks in the United States. The internal investigation into the failure of the bank and the Fed’s regulation of it will hopefully identify what went wrong and how to prevent it in the future. The incident has also highlighted the need for stronger regulatory measures to ensure the stability of the banking system and prevent future occurrences.


Tagged : / / / / /

Ted Cruz Introduces Bill to Block Fed CBDC

In a bid to prevent the Federal Reserve from launching a “direct-to-consumer” CBDC, Republican Senator Ted Cruz has introduced a bill aimed at blocking the move. Cruz is concerned that a retail CBDC could be used by the federal government for financial surveillance, and is seeking to protect American citizens’ financial privacy while maintaining the dollar’s dominance and promoting innovation. This is not the first time that Cruz has attempted to block the Fed’s CBDC initiative. He previously introduced a similar bill, along with fellow Republican Senators Braun and Grassley, in March 2022, but it failed to progress beyond the introduction phase.

Meanwhile, the Federal Reserve Bank of New York and several large financial firms have made significant progress on a U.S. dollar CBDC since President Joe Biden signed an executive order entitled “Ensuring Responsible Development of Digital Assets” in March 2022. In November, they participated in a 12-week digital dollar pilot program with Mastercard and SWIFT.

Cruz, Braun, and Grassley are not alone in their opposition to CBDCs. Florida Governor Ron DeSantis has also called on state lawmakers to introduce legislation banning the digital dollar in Florida.

However, proponents of CBDCs argue that they have the potential to revolutionize the way we use money, making transactions faster, cheaper, and more secure. CBDCs could also help to reduce the risks associated with cryptocurrencies, such as volatility and lack of regulation. They could also improve financial inclusion by providing access to banking services to people who are currently underserved by traditional banks.

It remains to be seen whether Cruz’s bill will gain any traction, but it is clear that the debate over CBDCs is far from over. As more countries explore the possibility of launching their own digital currencies, it is likely that we will see increasing calls for regulation and oversight to ensure that CBDCs are developed responsibly and with the best interests of citizens in mind.


Tagged : / / / / /

Federal Regulators Testify on Bank Failures

Representatives from the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve will provide testimony about the failure of two major banks, Silicon Valley Bank and Signature Bank, at an upcoming hearing that has just been announced by the United States House Financial Services Commission. Legislators are attempting to comprehend the factors that contributed to the failure of these institutions. The hearing is set to take place on March 29, and it will contain evidence from the head of the FDIC as well as the vice chair of supervision for the Fed.

The Silicon Valley Bank was forced to close its doors on March 10 as a result of a run on the bank by its large depositors. The majority of uninsured depositors who had more over $250,000 were covered by the government once they stepped in. On the other hand, it was claimed that Signature Bank did not have any problems with its solvency at the time of its closure on March 12. The FDIC was nonetheless given responsibility of the firm’s insurance procedure by New York’s regulatory authorities.

A report on the supervision and regulation of Silicon Valley Bank by the Federal Reserve is going to be published soon by Michael Barr of the Federal Reserve. According to recent reports, the Department of Justice and the Securities and Exchange Commission have both opened investigations into allegations that some officials at the bank sold shares in the weeks running up to the institution’s shutdown.

Some MPs have indicated that exposure to crypto businesses may have played a part in the failure of the banks, while supporters in the industry have maintained that government officials were attempting to “de-bank” crypto and blockchain enterprises. The House Committee on Financial Services has indicated that it plans to conduct additional hearings about this matter.

It is important to note that Silicon Valley Bank is not connected in any way to Silicon Valley Bank Group, also known as SVB Financial Group. SVB Financial Group is a publicly listed firm that specializes in providing financial services to enterprises in the technology and life science industries. On the other hand, Signature Bank is a commercial bank that provides an extensive range of services and is principally active in the state of New York.


Tagged : / / / / /

Future of Silicon Valley Bank May Put Trillions of Dollars at Risk

The potential collapse of Silicon Valley Bank (SVB) has caused alarm among regulators, investors, and depositors alike, with experts warning that the fallout could extend far beyond the tech bank itself. The Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) have been closely monitoring the situation and considering their options, but there are growing concerns that any missteps could have serious consequences for small banks across the United States.

According to Bob Elliot, a former Bridgewater executive and CEO of investment firm Unlimited, nearly a third of all deposits in the United States are held in small banks, and around 50% of these deposits are uninsured. While the FDIC does insure small deposits in all banks in the US, this only covers about $9 trillion of the nearly $17 trillion of outstanding deposit base. Under the hood, the coverage rate is roughly 50% across most institutions, while credit unions are higher.

With small banks in the United States holding $6.8 trillion in assets and $680 billion in equity as of February 2023, the failure of a major institution like SVB could trigger a chain reaction that puts thousands of small banks at risk of a run. As Elliot points out, this is not just a Wall Street problem, but a “main street problem” that could have serious implications for businesses and individuals across the country.

These concerns have been echoed by others in the industry, including Y Combinator CEO Garry Tan, who created a petition urging regulators to step in and implement a backstop for depositors. The petition notes that nearly 40,000 of all depositors at Silicon Valley Bank are small businesses, and warns that over 100,000 people could lose their jobs if swift action is not taken.

In response to these concerns, the FDIC and the Fed are reportedly discussing the creation of a fund to backstop more deposits at troubled banks. This fund would respond to the SVB collapse and would be intended to reassure depositors and reduce panic. While the details of this fund are still being worked out, it is clear that regulators are taking the situation seriously and are actively looking for ways to mitigate the potential risks.

Silicon Valley Bank is one of the top 20 largest banks in the United States and provides banking services to many crypto-friendly venture firms. The bank’s collapse would be felt throughout the industry, with assets from blockchain venture capitalists totaling more than $6 billion at the bank. Some of the largest investors include Andreessen Horowitz with $2.85 billion, Paradigm with $1.72 billion, and Pantera Capital with $560 million.

The future of Silicon Valley Bank is still uncertain, but what is clear is that the decisions made by regulators in the coming days and weeks will have significant consequences for the banking industry as a whole. As Elliot warns, the potential risks extend far beyond SVB itself and could put trillions of dollars at risk if not handled carefully.


Tagged : / / / / /

US Federal Reserve to Create Cryptocurrency Team Amid Concerns Over Unregulated Stablecoins

The US Federal Reserve is taking steps to address the fast-evolving cryptocurrency industry. The central bank has announced that it is creating a specialized team of experts to monitor developments in the cryptocurrency sector, with a particular focus on stablecoins. The move comes amid concerns that unregulated stablecoins could put households, businesses, and the broader economy at risk.

Speaking at the Peterson Institute for International Economics in Washington on March 9, Vice Chair for Supervision Michael Barr acknowledged the transformative potential of cryptocurrencies but also warned that the benefits of innovation can only be realized if appropriate guardrails are in place. The new crypto team will help the Federal Reserve “learn from new developments and make sure we’re up to date on innovation in this sector.”

The Federal Reserve’s stance is not surprising, given its mandate to promote stability and public confidence in the financial system. However, the move to create a specialized crypto team marks a significant step forward in the central bank’s approach to cryptocurrencies. It highlights the growing recognition of the importance of cryptocurrencies in the financial system and the need for appropriate regulatory frameworks to manage their risks and harness their potential.

Barr emphasized that regulation needs to be a “deliberative process” to ensure that a balance is reached between over-regulation that “will stifle innovation” and under-regulation that “will allow for substantial harm to households and the financial system.” He cautioned that any widespread adoption of stablecoins that are not regulated by the Fed could put households, businesses, and the broader economy at risk.

Stablecoins are cryptocurrencies that are pegged to a stable asset, such as the US dollar. They are designed to reduce the volatility associated with traditional cryptocurrencies, making them attractive to investors and merchants. However, stablecoins are not immune to risks, and there are concerns that the assets backing many stablecoins in circulation are illiquid. This means that it can be difficult to liquidate them for cash when needed, potentially leading to a “classic bank run.”

Barr’s comments on stablecoins echo similar concerns raised by other regulators, including the Securities and Exchange Commission (SEC) and the Financial Stability Oversight Council (FSOC). In December 2020, the FSOC, which is chaired by Treasury Secretary Janet Yellen, issued a report warning that stablecoins could pose a risk to financial stability if they become widely adopted without appropriate regulatory safeguards.

The move by the Federal Reserve to create a specialized crypto team is a positive development for the cryptocurrency industry. It demonstrates that the US central bank is taking a proactive approach to managing the risks and harnessing the potential of cryptocurrencies. The crypto team will be responsible for monitoring developments in the sector, advising the Fed on appropriate regulatory frameworks, and working with other regulators to ensure a coordinated approach.

The creation of the crypto team also highlights the growing importance of cryptocurrencies in the financial system. As more individuals and businesses adopt cryptocurrencies, it is essential that regulators keep up with the pace of innovation to ensure that appropriate regulatory frameworks are in place. This will help to promote stability and public confidence in the financial system while also enabling the benefits of innovation to be realized.


Tagged : / / / / /

The Fed Rejects Custodia Bank’s Membership Application

Custodia Bank, a bank that deals in cryptocurrencies, asked the United States Federal Reserve to reconsider its membership application to the Federal Reserve System. However, the United States Federal Reserve turned down this request. A district court has allowed a lawsuit between Custodia Bank and the United States Federal Reserve to continue.

Custodia’s application “was inconsistent with the requisite elements under the law,” according to an earlier decision made by the Federal Reserve Board, which was cited in the central bank’s announcement on February 23 on the denial of membership.

The Federal Reserve rejected Custodia’s membership application in January, about four years after the company first submitted the request in 2019. Applicants have the right, according to the regulations of the board, to request that membership choices be reconsidered.

The reason the Fed gave for rejecting Custodia’s application was that the company’s management structure was “insufficient.”

In addition to this, it referred to a joint statement that it had prepared jointly with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. In this declaration, it said that cryptocurrencies were “inconsistent with safe and sound banking practices.”

Custodia has said that it would want to become a member of the Federal Reserve System in order to be subject to the same regulations that are imposed on conventional banks. In addition, this would pave the way for other cryptocurrency institutions to be subject to the same stringent requirements.

This week, on February 22, a judge in a district court in Wyoming dismissed a petition by the Federal Reserve board to dismiss a complaint filed by Custodia about a delay of more than two years in the opening of a master account with the Federal Reserve.

With a master account, Custodia would be able to access the payment systems of the Federal Reserve without having to use any other banks as intermediaries. Custodia’s request for a master account with the Fed was turned down on January 27, more than two years after the company first submitted its request for the account in October 2020.

After that, the Fed made a motion to dismiss the case since the account rejection rendered the complaint meaningless. Custodia, on the other hand, submitted a proposed amended complaint to the court on February 17, alleging that the Federal Reserve unfairly singled out and rejected its application as part of a “concentrated and coordinated” effort with the administration of President Joe Biden and requesting that the court reverse the decision.

Nathan Miller, a spokeswoman for Custodia, was quoted as saying in a statement that was released on February 17 that the case “zeroes in on the main legal issue: whether Congress ever authorized the Fed jurisdiction to determine master accounts at all.” He also said that the Fed “pressed the hand” of the cryptocurrency bank, stating that the institution “tried every avenue to find a sensible route ahead.”

A deadline of March 1 has been set by the judge for Custodia to submit its first revised complaint to the court.


Tagged : / / / / / /

Billionaire investor Ray Dalio has described fiat currency as being in serious jeopardy

Ray Dalio, a billionaire investor, has said that fiat money is under “jeopardy” as an effective store of wealth, but he does not think that Bitcoin (BTC) and stablecoins will be the answer to the problem.

On February 2, the founder of the hedge fund firm Bridgewater Associates appeared on CNBC’s Squawk Box to discuss his concerns regarding the “effective money” status of the United States dollar and other reserve currencies as a result of the massive amount of money that has been printed using these currencies.

“We live in a world where the form of money that we are used to is under peril. We are creating too much money, and it’s not just the United States doing it; it’s all of the reserve currencies.”

Nevertheless, Dalio was quick to add his opinion on whether Bitcoin was a viable answer to the problem, noting that despite everything it has done in “12 years,” it is still too unpredictable to function as money:

“This is not going to be a productive use of money. It does not function very well as a means of storing riches. “He claimed that it is not a viable medium of trade since it is not efficient.

Stablecoins, which are replicas of state-backed fiat currency, were another kind of cryptocurrency that he thought was ineffective as a form of money.

Instead, Dalio recommended the introduction of a “inflation-linked currency,” which would help customers preserve their purchasing power in the face of rising prices.

“The item that comes the closest to that is something called an inflation index bond,” he said. “However, if you developed a coin that says OK, this is purchasing power that I know I can save in and put my money in over a period of time and trade in everywhere, I believe that would be a terrific coin.”

“Therefore, I believe that you are going to witness the creation of currencies that you have not seen before and that most likely will end up becoming coins that are both beautiful and viable. He continued by saying, “I don’t believe Bitcoin is the answer.”

On the other hand, Dalio’s assessment of Bitcoin and the practicality of an inflation-linked currency did not get widespread support from the financial community.


Tagged : / / / / / / / /

Custodia Bank’s Application to Join Federal Reserve Rejected

The application that Custodia Bank submitted to join the Federal Reserve System was denied by the Board of Governors of the Federal Reserve System in the United States. The Federal Reserve noted in its statement that the application “was not compatible with the relevant conditions under the law.” In addition to this, it asserted that Custodia possessed a management framework that was “insufficient,” and it referred to an earlier joint declaration made by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, which concluded that cryptocurrency assets are incompatible with safe banking procedures.

In spite of the fact that the bank’s application for a master account was denied, the bank said in a tweet that the application is still in the processing stage. Because of what is known as a “master account,” a financial institution is able to carry out crucial tasks such as making international money transfers. Custodia, which is led by Caitlin Long, submitted an application for the master account in 2020 and filed a lawsuit against the Fed in June due to the prolonged delay in the Fed’s consideration of the application.

According to a statement released by Custodia, the Fed set the bank a deadline of three days and three nights to withdraw its application. Custodia aggressively sought federal oversight, going above and beyond all of the rules that apply to ordinary banks, the report noted.

In August, when it became apparent that digital asset banks may have a difficult time acquiring an account, the Fed did not provide rules for the issuance of master accounts until after it had become evident that digital asset banks could have a difficult time receiving an account. “Institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review,” the Fed said in a statement at the time. “Institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks.”

In October, the Federal Reserve granted the BNY Mellon bank permission to provide cryptocurrency custody services. As a result, the BNY Mellon bank became the first major U.S. bank to offer simultaneous custody of digital assets and conventional investments on the same platform. Custodia Bank was established in Wyoming in 2020, taking advantage of the crypto-friendly state’s opt-in custody laws for “blockchain banks” that were implemented in 2019.


Tagged : / / / / / /

ARK Invest CEO: Crypto Assets Will See Huge Turn

The chief executive officer of the cryptocurrency and technology investment business ARK Invest predicts that this year will see a significant shift in the value of crypto assets due to a decline in inflation and a shift in monetary policy by the Fed. Cathie Wood, CEO of ARK Invest and Chief Investment Officer, provided an assessment of the macroeconomic forecast in a video blog post for the firm that was published on January 23.

She said that there were several signs pointing to reduced inflation, which “suggests that the Fed should pivot shortly.” She was referring to the recent pivot that the Fed made.

As the macroeconomic outlook improves and financial constraints are eased, this would be positive for risky assets such as cryptocurrency.

She also said that the company anticipates inflation would decrease to the 2% goal level set by the Fed.

Nevertheless, Wood anticipated that inflation may go below this level and perhaps into negative territory since the money supply has been declining. This is due to the fact that the money supply has been falling.

She said that the market is now awaiting a signal from the Federal Reserve, and she went on to say that “we expect it will happen in the first half of 2023.”

She said that the portfolios that ARK Invest manages ought to perform rather admirably in the event that interest rates are set to fall below forecasts.

ARK operates not just a cryptocurrency asset fund but also a blockchain venture investment fund, a disruptive innovation fund, and six active exchange-traded funds that are centred on technology and fintech (ETFs).

While this was going on, ARK Chief Futurist Brett Winton was discussing artificial intelligence (AI), and he said that advancements in this field will speed up in 2023.

Additionally, he predicted that crypto assets will see a significant change for the better this year. ” Public blockchains, cryptocurrencies, and crypto assets, all of which are going through a turbulent moment right now, are likely to become even more distinguished due to their scarcity in an era of plenty.”

He went on to say that whenever there is a shift in the macro environment and the Federal Reserve “changes its spots,” there is a greater possibility for “growth and value realisation inside the venture and public market area.”

Wood came to the conclusion that the recent technical advances will lead to deflation, which in turn would “create a boom in the goods and services linked with this innovation.”

The most recent action taken by ARK Invest was to realise a profit on a portion of its holdings in Grayscale Bitcoin Trust (GBTC) and then load up on 320,000 shares of Coinbase (COIN), which are now valued at around $17.6 million.


Tagged : / / / / / /

Senate Banking Committee Democrats caution SoFi about deadlines

Sherrod Brown, who chairs the United States Senate Banking Committee, and three other Democratic members of the committee sent letters on November 21 to a number of government authorities as well as to Anthony Noto, the president of SoFi Technology. Noto was also copied on the letters. Brown chairs the committee.

They were concerned about the efforts that the online bank was making to satisfy the standards that were laid out by the Federal Reserve Board, as well as the trading of nonbank digital assets that was being conducted by SoFi Digital Assets. Specifically, they were concerned about the trading of nonbank digital assets by SoFi Digital Assets.

Sherrod, along with Senators Jack Reed, Chris Van Hollen, and Tina Smith, mention in their letter to Noto that the Federal Reserve has stated that SoFi is “currently engaged in crypto-asset related activities that the Board has not found to be permissible” for a bank holding company (BHC) or financial holding company. This information is included in the letter that Sherrod sends to Noto. This assertion is made in relation to the reality that SoFi is “now participating in actions linked to crypto assets that the Board has not deemed to be acceptable. “

After SoFi completed its purchase of Gold Pacific Bancorp, a bank holding company, at the beginning of this year, the Federal Reserve acknowledged SoFi as a suitable candidate for the post of financial holding company.

However, the company did “announce a new service that lets customers of its national bank invest a portion of every direct deposit into digital assets for free.” Although SoFi was not allowed to expand its illegal activities or conduct cryptocurrency transactions within its national bank subsidiary, the company did “announce a new service that lets customers of its national bank invest a portion of every direct deposit into digital assets for free.”

In addition to this, “SoFi’s facilitation of customer digital asset trading and holding digital assets on the balance sheet raises questions about the appropriate calculation of capital requirements.” [Citation needed] [Further citation is required]

In conclusion, the senators have a few questions and concerns concerning the digital assets that are made available by SoFi.

In the investor protection documents that it provides, SoFi classified one of the cryptocurrencies it distributes as “a crypto pump-and-dump” Despite this description, the business did not stop providing the cryptocurrency to its customers.

A response to the issues mentioned above is required by the authors by December 8 at the latest. In addition, the senators expressed their concerns once again in a letter that was sent to Michael Barr, who is the vice chair of the Federal Reserve; Martin Gruenberg, who is the acting head of the Federal Deposit Insurance Corporation; and Michael Hsu, who is the acting comptroller of the currency.


Tagged : / / / /
Bitcoin (BTC) $ 39,563.60 2.06%
Ethereum (ETH) $ 2,168.31 3.17%
Litecoin (LTC) $ 72.46 0.85%
Bitcoin Cash (BCH) $ 228.39 0.93%