The United States Government Accountability Office (GAO) has recently released a preliminary report into the collapse of Silicon Valley Bank and Signature Bank. The review revealed that, prior to their failure, the banks had significant exposure to deposits from the cryptocurrency industry.
The GAO report identified that poor governance and unsatisfactory risk-management practices had led to the unfortunate demise of Signature Bank. In the hours preceding its failure, it was revealed that the management of Signature Bank were unable to fully understand their liquidity positions - leaving the bank in a vulnerable position.
At the same time, the GAO noted how, in the months leading up to its failure, Signature Bank had been exposed to the digital asset industry - as had the voluntary liquidation of Silicon Valley Bank in March. However, in comparison to Signature Bank, the GAO did not offer much detail regarding Silicon Valley Bank.
When discussing the collapses of the two banks, U.S. lawmakers inquired about their oversight at the May 11th hearing. Michael Clements, GAO’s Director of Financial Markets & Community Investment, told the lawmakers that bank regulators had identified certain concerns with the banks before their failure, however these supervisory actions had not been escalated in time. Furthermore, Clements also provided some detail into Silvergate Bank, which to some extent is perceived to be similar to that of Signature Bank, and has had deposits connected to digital asset firms in the past.
According to the New York Department of Financial Services Superintendent, Adrienne Harris, any connection between Signature’s failure and crypto is “ludicrous” - deeming the incident to be more of a traditional bank run. Regardless, crypto firms such as BlockFi and Gemini issued a joint statement in response to the bank failures, highlighting that they had either had no exposure or sufficient funds to offset their exposure.
In going further, it's clear more in-depth research and consideration needs to be undertaken in order to draw further conclusions and understand how digital assets may have affected the collapse of Signature and Silicon Valley Bank. Nonetheless, these two unfortunate incidents have continued to be a key talking-point amongst regulators and lawmakers - particularly in connection to ‘unstablecoins’ and the added risks and de-pegging of these financial instruments.
Yana Long
- 2023-05-11
Examining the Collapse of Silicon Valley and Signature Bank
This article discusses the details of the United States Government Accountability Office (GAO) preliminary report into the collapse of Silicon Valley Bank and Signature Bank. U.S. lawmakers inquired about the oversight of the two banks at a May 11th hearing.
