On Tuesday, the U.S. Senate Committee on Banking, Housing, and Urban Affairs, also known as the Senate Banking Committee, held a hearing to discuss the recent bank collapses in the United States and the regulatory response. Throughout the testimonies, digital assets and crypto businesses were mentioned. Senate Banking Committee chairman Sherrod Brown claimed on Tuesday that Signature Bank “found itself in the middle of Sam Bankman-Fried’s crime spree at the crypto exchange FTX.”
Regulators Highlight Bank Exposure to Crypto Asset Businesses in Senate Banking Committee Hearing About Bank Failures
Following the collapse of Silvergate Bank, Silicon Valley Bank, and Signature Bank, the Senate Banking Committee held a hearing to discuss the situation and its implications. The hearing witnesses included Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC); Michael Barr, vice chairman for supervision with the Board of Governors of the Federal Reserve; and Nellie Liang, the Treasury’s domestic finance undersecretary, in addition to committee chairman Sherrod Brown and ranking member Tim Scott.
Senate hearing on recent bank failures happening now. All 3 witnesses are folks I named as architects of OCP2.0https://t.co/xRQ8LONpGA
— nic 🌠 carter (@nic__carter) March 28, 2023
“Right now, none of the executives who ran these banks into the ground are barred from taking other banking jobs, none have had their compensation clawed back, none have paid any fines,” explained Brown. “Some executives have decamped to Hawaii. Others have already gone on to work for other banks. Some simply wandered off into the sunset.” The chairman of the Senate Banking Committee revealed that he is preparing legislation that will enhance regulators’ capacity to enforce fines and penalties, reclaim bonuses, and prohibit executives who are responsible for bank failures from ever working at another bank again.
wow.. Barr tells Senate Banking that SVB told regulators $100b was going to fly out the door on Friday… after $42b fled on Thursday, leading to the bank’s closure. If you don’t think we’re in a new world of potential hyper-speed bank runs, you’re not paying attention.
— Steve Liesman (@steveliesman) March 28, 2023
The FDIC chairman, Gruenberg, discussed the exposure to cryptocurrency businesses in connection to the bank failures. Gruenberg talked about how Silvergate Bank stated that it held “$11.9 billion in digital asset-related deposits” and had “less than 10 percent of total deposits” exposed to FTX. The chairman also mentioned the crypto asset clientele of Signature Bank, as well as the digital currency settlement systems of both Silvergate and Signature. Gruenberg noted that these banks held long Treasuries and were unprepared for the interest rate increases that followed the Covid-19 pandemic.
“A common thread between the collapse of Silvergate Bank and the failure of SVB was the accumulation of losses in the banks’ securities portfolios,” Gruenberg said.
The chairman of the FDIC stated that the situations involving both Signature Bank and Silicon Valley Bank “warrant further extensive examination by both regulators and policymakers.” Michael Barr of the Federal Reserve added that SVB’s downfall was caused by its management’s inability to cope with interest rate adjustments and a bank run. “SVB failed because the bank’s management did not effectively manage its interest rate and liquidity risk, and the bank then suffered a devastating and unexpected run by its uninsured depositors in a period of less than 24 hours,” Barr emphasized.
Barr stressed the importance of developing the current comprehension of banking “in light of evolving technologies and emerging risks.” He stated that the Federal Reserve was “analyzing” recent incidents and variables such as “customer behavior, social media, concentrated and novel business models, rapid growth, deposit runs, interest rate risk, and other factors.” The U.S. central bank representative added that, with all of these new and emerging variables, regulators must reconsider how they supervise and regulate financial institutions in the United States. “And for how we think about financial stability,” Barr concluded.
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bank executives, bank failures, Banking technology, bonuses, concentrated business models, COVID-19, crypto businesses, customer behavior, deposit runs, Digital Assets, Exposure, FDIC, Federal Reserve, Financial Crisis, Financial Institutions, Financial Regulation, financial stability, fines, Hawaii, interest rate increases, interest rate risk, Legislation, liquidity risk, Martin Gruenberg, Michael Barr, Nellie Liang, novel business models, pandemic, penalties, rapid growth, regulatory oversight, regulatory response, securities portfolios, senate banking committee, Sherrod Brown, Signature Bank, Silicon Valley Bank, Silvergate Bank, Social Media, supervising financial institutions, Tim Scott, Treasury, uninsured depositors
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Jamie Redman
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