US Bank Failures Shock Regulators

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.

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US Crypto Crackdown Hurts USD Coin

In an interview with Bloomberg TV, Circle CEO Jeremy Allaire stated that the US regulatory crackdown on cryptocurrencies has been a significant factor behind the decreasing market capitalization of USD Coin (USDC). The regulatory scrutiny on USDC comes after the collapse of the FTX exchange, a banking crisis, and USDC’s depegging.

The USDC depegged in March due to the US banking crisis, which caused Circle’s $3.3 billion worth of USDC reserves to be stuck with Silicon Valley Bank, one of the three crypto-friendly banks that were shut down by regulators. Although Circle had assured its customers that it had the backing from investors to fill the gap, the news caused the market to react quickly, and USDC depegged from the US dollar.

At its peak, USDC had a market cap of $56 billion, placing it right behind Tether-issued USDT. However, since the banking crisis and USDC’s depeg, the stablecoin’s market cap has been reduced nearly by half, currently sitting at $30.7 billion.

Circle CEO Allaire has also raised concerns that the lack of regulatory clarity in the US may force crypto companies to seek opportunities overseas. With the recent passing of the Markets in Crypto-Assets Act (MiCA) by the European Parliament and the push for adoption by Hong Kong, Allaire believes that the US will be left behind.

Allaire has called for Congress to step up, stating that it is a critical moment for the US. The US Securities and Exchange Commission (SEC) led by Gary Gensler has been on an enforcement spree since the FTX collapse saga. The SEC has threatened regulatory action against multiple crypto platforms and exchanges.

During the oversight hearing on digital assets, Gensler faced pushback from policymakers, and many crypto proponents have also questioned the authority of the SEC and Gensler. The regulatory environment in the US has caused uncertainty and concern, leading to a decline in the market capitalization of USDC.

In conclusion, the regulatory crackdown on cryptocurrencies by US regulators has been a significant factor behind the decreasing market capitalization of USDC. Circle CEO Jeremy Allaire has raised concerns about the lack of regulatory clarity and the US banking system’s global reputation. The passing of the Markets in Crypto-Assets Act (MiCA) by the European Parliament and the push for adoption by Hong Kong have put the US at risk of being left behind in the crypto industry. Congress needs to step up and provide regulatory clarity for the US to remain competitive in the evolving crypto landscape.

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US Crypto Crackdown Could Stifle Innovation and Weaken Dollar

The US government’s ongoing crackdown on cryptocurrencies and crypto firms is causing concerns among industry experts, who argue that it could have a negative impact on innovation and weaken the dollar’s global position. The recent Wells notice issued to Coinbase by the SEC is just one example of the legal threats that crypto firms are facing in the US, and many believe that there could be more to come.

According to Mati Greenspan, the chief of crypto research firm Quantum Economics, US regulators have been unfriendly to crypto “since the beginning.” Some suggest that the recent collapses of crypto and startup-friendly banks, such as Silvergate, Silicon Valley Bank, and Signature Bank, are part of a larger scheme by regulators to “un-bank” the crypto sector, which has been dubbed “Operation Choke Point 2.0.”

Meanwhile, a March 20 economic report from the White House was highly critical of the merits of crypto assets, spending almost an entire chapter debunking their “touted” benefits. However, as more people begin to use crypto for cross-border remittances globally, there are concerns that a crackdown on crypto in the US could actually have the opposite effect on the dollar. By isolating the US further, it could weaken the dollar’s position as the global reserve currency.

Greenspan suggests that the White House should instead review the practices in the banking industry, rather than targeting the crypto sector. The recent action against Coinbase has been described as part of an “adversarial environment for the crypto industry” in the US, which could drive jobs, investment, and future innovation offshore to countries like Singapore, Hong Kong, and Australia.

Despite the concerns raised by industry experts, the exact reasons for the SEC’s targeting of Coinbase remain unclear. The SEC has declined to comment on the matter, leaving many in the crypto community uncertain about what the future holds for the industry in the US.

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