- Gruenberg Raises Concerns about Crypto in Prudential Regulators Hearing
- Former SVB CEO Attributes Failures to Rising Interest Rates
The failure of Signature Bank was primarily attributed to inadequate management and insufficient liquidity. FDIC Chairman Martin Gruenberg, however, believes that the bank should have been more aware of the risks associated with cryptocurrencies, as it could have prevented its rapid downfall.
During a recent hearing on the supervision of financial regulators, FDIC Chairman Martin Gruenberg discussed the failures of Silicon Valley Bank (SVB) and Silvergate Bank. These incidents had a significant impact on the stock prices of these banks and triggered deposit withdrawals from other financial institutions.
Dependence on Uninsured Deposits
According to the FDIC’s top risk officer, the primary reason for the failure of Signature Bank was poor management. He highlighted that Signature Bank did not take sufficient precautions to address its reliance on uninsured deposits, which ultimately led to its downfall.
Gruenberg elaborated:
“Furthermore, the bank failed to recognize the potential risks associated with its connection to and dependence on deposits from the cryptocurrency industry. It also did not consider the possibility of being affected by the turmoil within the cryptocurrency industry that occurred in late 2022 and continued into 2023”.
According to the former CEO of SVB, Greg Becker, one of the factors contributing to the bank’s failure was the rise in interest rates. However, regulators and banking experts believe that bank collapses are primarily driven by deposit runs, where customers withdraw their funds from the bank.
According to Becker, no bank could withstand a rapid and extensive withdrawal of funds from customers, known as a bank run. The collapses of SVB and Signature Bank resulted in losses of $16.1 billion and $2.4 billion, respectively, as disclosed by Gruenberg. However, the initial investigation by the United States Government Accountability Office did not directly attribute the failure of Signature Bank to its vulnerability to cryptocurrencies.
This information is for general knowledge only and should not be considered as advice for investing or making financial decisions.
