Written by Nic Carter at his personal blog about the supposed crackdown on cryptocurrency by the Federal Government, particularly senators like Elizabeth Warren and Sherrod Brown. Article used quite a few circumstantial evidences, though the overarching point stands.
On disproportionate risk taken by crypto friendly banks
Banks have been discouraged from providing services to crypto related businesses. In addition, additional overheads from requirements such as KYC or insurance did not make such an endeavor worth it. Therefore, crypto businesses were all exposed to the same few banks who were willing to service them
At the start of 2023, the FDIC dramatically increased the level of oversight on these banks around the turn of the year. Bank executives were supposedly forced to clear all new crypto clients proactively with the FDIC.
On Silvergate
Silvergate was dependent on advances from the Federal Home Loan Bank, which it was using to honor withdrawals. In Q4, Silvergate had taken out $4.3B in advances from the Federal Home Loan Bank so that they could handle outflows. They noted in a filing that being cut off from this facility would prove fatal. However, in early March, they abruptly repaid the entire facility, and promptly announced that they would be liquidating, sparking the broader bank run.
It is widely suspected, that Elizabeth Warren’s office actually coordinated her campaign to undermine confidence in Silvergate with notorious short sellers, serious answers must be sought.
It is not the first time a member of Congress has arguably incited a bank run. Chuck Schumer is credited by the Office of Thrift Supervision with contributing to the 2008 collapse of Indymac during the 2008 Financial Crisis, then the second largest bank failure in US history.
On Signature
Signature was not a “crypto bank” like Silvergate, where the majority of deposits were derived from crypto firms. It had a reputation and mainly serviced real estate. Apparently to Barney Frank, Signature would have been operational Monday despite the outflows. Piper Sandler also collaborated and said that Signature’s ‘“balance sheet looked fine”
NYDFS claimed they had a “crisis of confidence” in Signature’s leadership, and that they weren’t provided with sufficient data in a timely fashion during the crisis. However, neither “confidence” nor “data” are acceptable reasons to expropriate a solvent bank, especially when other banks in a similar position were given time to save themselves and access the Fed’s new Bank Term Funding Program facility.
In particular, the disparate treatment given to Signature versus their peers PacWest or First Republic is extremely telling. Both banks were in similar or worse financial positions, yet both were given time to save themselves, whereas Signature was seized on a Sunday night, right after Silicon Valley Bank’s collapse. First Republic was given time to raise after the Silicon Valley Bank collapse, and secured a $30B lifeline.
Reuters reported on March 16th that Signature, if sold, would have to exclude their crypto business, according to two sources. This was later later denied by the Federal Deposit Insurance Corporation, but lo and behold, when the Federal Deposit Insurance Corporation announced on Sunday March 19th that Signature would be acquired by New York Community Bancorp’s Flagstar bank, the crypto business was not included.