The U.S. Senate Committee on Banking, Housing, and Urban Affairs, also known as the Senate Banking Committee, convened on Tuesday to analyze the recent bank collapses in the United States and the regulatory response. During the meeting, digital assets and crypto businesses were mentioned. Senate Banking Committee chairman Sherrod Brown remarked on Tuesday that Signature Bank “found itself in the middle of Sam Bankman-Fried’s misdeeds at the crypto exchange FTX.”
Regulators Shed Light on Banks’ Exposure to Crypto Asset Companies During Senate Banking Committee Hearing About Bank Failures
The Senate Banking Committee held a hearing on Tuesday to discuss the situation and its implications. Witnesses included Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC); Michael Barr, vice chairman for supervision with the Board of Governors of the Federal Reserve; and Nellie Liang, the Treasury’s domestic finance undersecretary, in addition to committee chairman Sherrod Brown and ranking member Tim Scott.
Senate hearing on recent bank failures happening now. All 3 witnesses are folks I named as architects of OCP2.0https://t.co/xRQ8LONpGA
— nic 🌠 carter (@nic__carter) March 28, 2023
“Right now, not one of the executives who ran these banks into the ground is being prevented from taking another banking job, no one has had their compensation taken away, none of them have paid any fines,” Brown explained. “Some executives have moved to Hawaii. Others have already gone on to work for other banks. Some simply wandered away.” The Senate Banking Committee chair mentioned that he is preparing legislation that will increase regulators’ capacity to impose fines and penalties, reclaim bonuses, and prohibit executives who are responsible for bank failures from ever working at another bank again.
wow.. Barr tells Senate Banking that SVB told regulators $100b was going to fly out the door on Friday… after $42b fled on Thursday, leading to the bank’s closure. If you don’t think we’re in a new world of potential hyper-speed bank runs, you’re not paying attention.
— Steve Liesman (@steveliesman) March 28, 2023
The chairman of the FDIC, Gruenberg, discussed the exposure to crypto asset businesses in connection to the bank collapses. Gruenberg talked about how Silvergate Bank declared that it held “$11.9 billion in digital asset-related deposits” and had “less than 10 percent of total deposits” exposed to FTX. The chairman also referred to the crypto asset clientele of Signature Bank, as well as the digital currency settlement systems of both Silvergate and Signature. Gruenberg noted that these banks held long Treasuries and were unprepared for the interest rate increases that followed the Covid-19 pandemic.
“A common theme between the collapse of Silvergate Bank and the failure of SVB was the accumulation of losses in the banks’ securities portfolios,” Gruenberg mentioned.
The FDIC chairman pointed out that the situations involving both Signature Bank and Silicon Valley Bank “require further extensive examination by both regulators and policymakers.” Michael Barr of the Federal Reserve shared that SVB’s downfall was caused by its management’s inability to cope with interest rate adjustments and a bank run. “SVB failed because the bank’s management did not properly 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,” Barr highlighted.
Barr stressed the importance of developing the current understanding of banking “in light of evolving technologies and evolving risks.” He stated that the Federal Reserve was “analyzing” recent incidents and variables such as “customer behavior, social media, concentrated and novel business models, rapid growth, deposit runs, interest rate risk, and other factors.” The U.S. central bank representative added that, with all of these new and emerging variables, regulators must reconsider how they supervise and regulate financial institutions in the United States. “And for how we think about financial stability,” Barr concluded.
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