The US Government Accountability Office (GAO) has published its preliminary review of the Silicon Valley Bank and Signature Bank bankruptcies, and includes exposure to deposits from the cryptocurrency sector.
In a report published on May 11, the GAO claims that “poor governance and unsatisfactory risk management practices” led to the failure of Signature Bank in March. The GAO did not explicitly report that digital assets were the cause of the bank’s failure, but listed exposure to the cryptocurrency sector among possible reasons.
“Signature Bank had exposure to the digital asset industry and declining liquidity in the months leading up to bankruptcy,” the report said. “FDIC staff said that Signature Bank management was unable to fully understand the bank’s liquidity positions in the days and hours prior to the failure.”
Although the GAO largely failed to mention crypto-friendly Silvergate Bank, which went into voluntary liquidation in March, the report said Signature was “perceived as similar.” Signature had about $12 billion in signature-related deposits of digital assets in 2022, but was looking to reduce its exposure to the crypto industry.
US lawmakers discussed oversight of failed banks at a hearing on May 11, in which GAO director of financial markets and community investment Michael Clements said banking regulators had identified concerns with Silicon Valley Bank and Signature Bank before its collapse, but “did not intensify supervisory actions in time”. Responding to questions from Tennessee representative John Rose, Clements said the GAO had reviewed “large depositories of the digital asset space” when considering whether the crypto sector had contributed to Signature’s bankruptcy.
“[Signature] I was just holding deposits and operating the accounts,” Clements said. “After some of the turmoil in 2022, particularly FTX, some of those deposits did start to drop.”
Different regulators have put forward their own views on the possible connection between exposure to cryptocurrencies and the collapse of these banks. Adrienne Harris, superintendent of the New York Department of Financial Services, reportedly said that any connection between Signature’s bankruptcy and cryptocurrency was “ludicrous,” describing the events as more like a traditional bank run.
Many regulators and legislators continue to invoke the failures of Signature Bank, Silicon Valley Bank, and Silvergate Bank in discussions surrounding cryptocurrencies. Following bank failures, cryptocurrency companies such as BlockFi and Gemini released statements claiming they had either sufficient funds to offset the exposure or no exposure at all.
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