FDIC Chairman Attributes Recent Bank Failures in the U.S. to Cryptocurrency

• Gruenberg raised the issue during a hearing focused on Oversight of Prudential Regulators.
• The former CEO of SVB pointed to rising interest rates as a contributing factor in the failures.

Poor management and insufficient liquidity were identified as significant contributors to the downfall of Signature Bank. However, FDIC chairman Martin Gruenberg believes the bank should have been more aware of the risks associated with cryptocurrencies, which may have prevented its rapid decline.

Gruenberg discussed the recent collapses of Silicon Valley Bank (SVB) and Silvergate Bank during a hearing on Oversight of Prudential Regulators convened by the Financial Services Committee of the United States House of Representatives. This resulted in notable declines in stock values and subsequent deposit withdrawals at other financial institutions.

Dependence on Uninsured Deposits

The FDIC’s chief risk officer assessed that poor management was “the root cause of Signature Bank’s failure.” He highlighted the bank’s lack of safeguards regarding its reliance on uninsured deposits.

Gruenberg elaborated

“Furthermore, the bank did not grasp the risks associated with its connection to, and dependence on, crypto industry deposits or its susceptibility to contagion from the turmoil in the crypto sector that transpired in late 2022 and into 2023.”

Former SVB CEO Greg Becker mentioned rising interest rates as a factor in the bank’s failure, even though regulators and banking experts assert that deposit runs are a primary cause of bank failures.

Becker stated that no bank “could endure a bank run of that speed and scale.” Gruenberg revealed losses of $16.1 billion and $2.4 billion as a result of the failures of SVB and Signature Bank, respectively. However, the preliminary investigation by the United States Government Accountability Office did not explicitly link the failure of Signature Bank to vulnerabilities related to cryptocurrencies.