FDIC Chairman shares views on Crypto’s role in US bank collapses

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On May 15, Martin J. Gruenberg, the Chairman of the Federal Deposit Insurance Corporation (FDIC) shared his views on the role of crypto in the recent three biggest bank collapses in the United States. The recent collapse of the three biggest banks, the Silicon Valley Bank, the Silvergate Bank, and the Signature Bank have caused widespread outages in the United States and the role of cryptocurrencies behind their failures. 

In a recent hearing on “Oversight of Prudential Regulators”, Martin J. Gruenberg said that the banking sector has remained very resilient in the stressful period. According to early first quarter 2023 reports, removing the effects of acquirers’ profits from their acquisitions of failed banks, the first quarter aggregate bank net income was essentially flat from the fourth quarter. Gruenberg unveiled the estimated losses from the bank’s collapse. The remaining estimated losses from the failure of the Silicon Valley Bank and the Signature Bank are of 2.7 billion and an additional $13 billion in loss from the subsequent closure of First Republic Bank, for which no systemic risk determination was made, will directly impact the DIF. 

According to the reports by the Chief Risk Officer, the primary cause of the Signature Bank collapse was liquidity precipitation by contagion effects after the announcement of the self-liquidation of Silvergate. The main reason behind the Signature Bank collapse was ill management. Additionally, the Signature Bank funded its fast growth with uninsured deposits and overdependence on these deposits. Also, the bank failed to implement fundamental liquidity management practices and controls. 

In his speech, the Chairman also discussed the crypto factor behind the failure. According to Gruenberg, the bank failed to understand the risk of its association with, and reliance on, the crypto industry. Although the effects of the failure of SVB and the liquidation of Silvergate were unprecedented and quickly developed. 

Few a days back, Michelle W. Bowman, the Governor and member of the Board of Governors of the Federal Reserve delivered a speech at the 21st Annual Symposium on Building the Financial System. In his speech, he mentioned that the failure of three banks was ignited by the prevalence of social media which further boosted the speed of failure. 

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