On Tuesday, the US Senate Committee on Banking, Housing, and Urban Affairs, also known as the Senate Banking Committee, held a hearing to discuss the recent banking collapses in the United States and the regulatory response. Throughout the testimonials, digital assets and crypto businesses were mentioned. Senate Banking Committee Chairman Sherrod Brown claimed Tuesday that Signature Bank “found itself in the middle of the Sam Bankman-Fried crime spree on cryptocurrency exchange FTX.”
Regulators Highlight Banks’ Exposure to Crypto Business in Senate Banking Committee Hearing on Bank Failures
Following the collapse of Silvergate Bank, Silicon Valley Bank and Signature Bank, the Senate Banking Committee held a audience discuss the situation and its implications. Witnesses for the hearing included Martin Gruenberg, president of the Federal Deposit Insurance Corporation (FDIC); Michael Barr, vice president of supervision for the Federal Reserve Board of Governors; and Nellie Liang, Treasury undersecretary for domestic finance, as well as committee chair Sherrod Brown and senior member Tim Scott.
Senate hearing on recent bank failures that are occurring now. The 3 witnesses are people I named as architects of OCP2.0https://t.co/xRQ8LONpGA
– nic 🌠 carter (@nic__carter) March 28, 2023
“At this point, none of the executives who led these banks to ruin are barred from taking other banking jobs, none have lost their compensation, none have paid fines,” Brown explained. “Some executives have moved to Hawaii. Others have already gone on to work for other banks. Some just walked off into the sunset.” The chairman of the Senate Banking Committee revealed that he is preparing legislation that will improve regulators’ ability to impose fines and penalties, claim bonuses and bar executives responsible for bank failures from ever working at another bank.
wow… Barr tells Senate Banking that SVB told regulators $100 billion was going to fly out on Friday… after $42 billion fled on Thursday, leading to the bank’s closure. If he doesn’t believe we’re in a new world of potential high-speed bank runs, he’s not paying attention.
—Steve Liesman (@steveliesman) March 28, 2023
FDIC Chairman Gruenberg discussed exposure to cryptocurrency businesses in relation to bank failures. Gruenberg spoke about how Silvergate Bank stated that it had “$11.9 billion in deposits related to digital assets” and had “less than 10 percent of total deposits” exposed to FTX. The president also mentioned Signature Bank’s crypto clientele, as well as Silvergate and Signature’s digital currency settlement systems. Gruenberg pointed out that these banks held long-term Treasuries and were not prepared for the interest rate increases that followed the Covid-19 pandemic.
“A common thread between the collapse of Silvergate Bank and the bankruptcy of SVB was the accumulation of losses in the securities portfolios of the banks,” said Gruenberg.
The FDIC chairman stated that the situations involving both Signature Bank and Silicon Valley Bank “warrant further scrutiny by regulators and policy makers.” The Federal Reserve’s Michael Barr added that SVB’s fall was due to his management’s inability to cope with interest rate adjustments and a run on banks. “SVB failed because the bank’s management failed to 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,” he stressed. Barr.
Barr stressed the importance of developing today’s understanding of banking “in light of evolving technologies and emerging risks.” He claimed that the Federal Reserve was “analyzing” recent incidents and variables such as “customer behavior, social media, novel and concentrated business models, rapid growth, runs on deposits, interest rate risk, and other factors.” The representative of the US central bank added that, with all these new and emerging variables, regulators must reconsider how they supervise and regulate financial institutions in the United States. “And because of how we think about financial stability,” Barr concluded.
What do you think about the Senate Banking Committee hearing on bank failures? Share your thoughts on this topic in the comments section below.
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