The United States Government Accountability Office, or GAO, released its preliminary review of the failures of Silicon Valley Bank and Signature Bank – and included the exposure of deposits from the cryptocurrency industry.
In a report released on May 11, the GAO said “poor management and poor risk management practices” led to the collapse of Signature Bank in March. The GAO did not clearly report that digital assets were the cause of the bank failure but mentioned the exposure of the crypto industry as possible reasons.
“Signature Bank had industry exposure to digital assets and reduced liquidity in the months prior to the failure,” the report said. “FDIC staff said that Signature Bank’s management did not fully understand the bank’s liquidity positions in the days and hours before the failure.”
Although the GAO largely did not mention crypto-friendly Silvergate Bank, which went into voluntary liquidation in March, the report said Signature was “viewed similarly.” The signature has roughly $12 billion in deposits connected to digital asset companies by 2022 but intends to reduce its exposure to the crypto industry.
US lawmakers discussed the handling of failed banks in a hearing on May 11, where GAO’s director of financial markets and community investment Michael Clements said bank regulators have identified the concern at Silicon Valley Bank and Signature Bank before their collapse but “did not escalate management actions during that time.” In response to a question from Tennessee Representative John Rose, Clements said the GAO is examining “large deposits from the digital asset space” to consider whether crypto contributed to Signature’s failure.
“[Signature] just holding deposits and operating accounts,” said Clements. “After some disturbances in 2022, especially FTX, some of the deposits started to fall.”
Various regulators have put their own views on the potential connection between crypto exposure and the collapse of these banks. Adrienne Harris, superintendent of the New York Department of Finance, reportedly said that any connection between the failure of Signature and crypto is “ridiculous,” describing the events as more than a traditional bank run.
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Many regulators and lawmakers continue to invoke the collapses of Signature Bank, Silicon Valley Bank, and Silvergate Bank in discussions around crypto. After the bank failures, crypto companies including BlockFi and Gemini released statements claiming to have enough funds to recover exposure or no exposure.
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