Silvergate, Silicon Valley Bank, and Signature: Big Picture in Small Details (Part 2/3)

The end of Silvergate, Silicon Valley, and Signature banks, in three not-so-concise parts, examines deficiencies of centralized cryptocurrency companies, impotent scrambling of the US banking system, administrative pushback against decentralized finance in the US, and the outcomes for the public and the crypto industry.

Source: Unsplash

Week 2 of following the burning trail left by the collapse of three major banks — Silvergate Capital, Silicon Valley Bank, and Signature Bank — all with close ties to the crypto industry and all holding significant assets of various blockchain projects and companies. This long-format series aims to connect the bewildering saga into a comprehensible link of events.

This is part 2 of a three-part series examining the tale of three banks, the convoluted events of the days which followed, the outcomes, and what this means for the regular person, and for the future of crypto.

To summarize

On Wednesday, March 8, crypto-focused Silvergate Capital announced a voluntary shutting of its operations and subsequent liquidation. Silvergate attributed the decision to a decline in their shares’ value, and the inability to recover from the collapse of FTX — one of Silvergate’s biggest clients.

Two days later, on March 10, Silicon Valley Bank (SVB) was shut by regulators, with the Federal Deposit Insurance Corporation (FDIC) given control of the bank and its proceedings. The reason? The $42 billion influx of withdrawal requests, for which the bank SVB wasn’t able to raise the needed cash.

Another two days later, March 12, New York’s Signature Bank was shut by federal regulators. Citing a “fear of continued contagion”, the US Treasury, Federal Reserve, and FDIC issued a joint statement to explain their decision. The bank had no insolvency issues.

In between updates on the crypto-banking clampdown, First Republic Bank failed on its own, as did Credit Suisse. Bitcoin, however, enjoyed a steady price growth, despite the US’ contradictory regulation proposals.

More money has never been loaned to banks and the SEC has never been busier, but do these events signify an impending financial crisis, or will we have to just ‘get over it’ and move along?

Monday, March 13, 2023

US regulators close Signature Bank

Former US House of Representatives member and Signature Bank board member Barney Frank has believes that New York regulators shut down Signature as a show of force, as the bank had no insolvency issues.

Frank stated that regulators wanted to send a strong anti-crypto message and that Signature Bank became the poster boy for this message, despite being solvent based on fundamentals.

Signature Bank was the third major bank with crypto ties to meet its end in the week prior, following Silvergate Bank’s parent company announcement of voluntary liquidation and California’s financial watchdog shutting down Silicon Valley Bank. The case of SVB and potential fraudulent activity of its executives is already being taken to court.

Silicon Valley Bank, CEO and CFO sued by shareholders for fraud

A group of shareholders has filed a class-action lawsuit against Silicon Valley Bank, CEO Greg Becker, and chief financial officer Daniel Beck. The lawsuit was filed in the wake of the bank’s closure by California regulators and alleges fraud on the part of the bank and its executives.

The shareholders claim that SVB, Becker, and Beck concealed information about the firm’s interest rates, which left the bank vulnerable to a potential run. They also allege that the bank’s public statements understated the risks it faced from likely interest rate hikes that could cause irreparable damage to the company.

DOJ and SEC launch investigation into the collapse of SVB

The collapse of Silicon Valley Bank is now under investigation by the Department of Justice (DOJ), sources report. The probe is currently in its preliminary stages and will investigate whether any bank executives sold stock before the collapse. The FBI’s San Francisco field office, specializing in white-collar crime, is leading the investigation. The US Securities and Exchange Commission (SEC) has also launched its own inquiry.

The bank was closed by the California Department of Financial Protection and Innovation last week, with the FDIC named as its receiver. The investigations are in the early stages and may not result in charges or allegations of wrongdoing, according to sources cited by the Wall Street Journal.

US Treasury official says this “situation is not 2008”

Meanwhile, US Treasury officials attempt to assure the public that the current “situation is not 2008”, referring to the last recession (2007-2009) and the resulting bank bailouts in 2008.

Such clarification became necessary following the Treasury’s launch of the Bank Term Funding Program (BTFP) — a program intended on preventing a bank run by increasing the banking system’s capacity to safeguard deposits and provide credit and money to the economy. Naturally, questions of liquidity arise, but remain unanswered. Perhaps the loud rumble of a printer working overtime will pacify any worries for the economy and worth of the US dollar.

USDC repegs as Circle CEO says 100% of reserves are safe

Circle is putting out the fire. The USDC stablecoin issuer suffered from exposure of its USDC reserves — worth $3.3 billion — in Silicon Valley Bank (SVB), with the stablecoin depegging to as low as $0.8774 and no ability to withdraw. Now that USDC has recovered, the next obstacle is the closure of Signature bank.

Source: Twitter

Circle used Signature’s Signet division for issuance and redemption of USDC. Signet was a real-time payments network built on the blockchain with the purpose of uninterrupted 24/7 operation. Signet facilitated commercial cryptocurrency transactions. Now, Circle is looking at ‘bringing on a new transaction banking partner with automated minting and redemption’.

Circle’s CEO Jeremy Allaire commented on the current situation via Twitter, stating that, “We [Circle] are committed to building robust and automated USDC settlement and reserve operations with the highest quality and transparency.” As an immediate solution, Circle will carry out settlements through BNY Mellon.

Luckily for Circle, no USDC reserves were held in Signature bank. The same cannot be said for cryptocurrency exchange Coinbase.

Coinbase holds $240M in Signature Bank, expects to “fully recover” funds

Following the shutdown of Signature Bank on Sunday, it has been revealed that cryptocurrency exchange Coinbase holds $240 million in the now-collapsed institution. However, Coinbase has assured its users that their capital fund remains protected by FDIC pass-through insurance and that it expects to fully recover the funds from the bank.

For Coinbase, Signature bank was responsible for facilitating client cash transactions, including payments between clients like hedge funds and exchanges, and running Signet. As of March 8, the bank reportedly held around $16.5 billion in cryptocurrency-related client deposits.

Source: Twitter

According to official statements, the shutdown was a way for regulators to step up their efforts to protect consumers and maintain the health and stability of the global financial system, especially in light of what happened to Silvergate and SVB.

Now that Signet is no longer available to crypto companies and customers, Signet is “left behind in the receivership and the FDIC will market it,” said David Barr, deputy director of communications at the FDIC in a comment to Forbes, though he did not disclose if any potential buyers have expressed interest nor what will become of the sale value.

Binance converts $1 billion industry recovery fund from BUSD to BTC, ETH & BNB

Binance has announced the conversion of its $1 billion Industry Recovery Initiative Fund from Binance USD Coin (BUSD) to Bitcoin (BTC), Ethereum (ETH), and Binance Coin (BNB). The fund was initially rolled out to support cryptocurrency projects facing a liquidity crisis after the collapse of FTX.

Source: Twitter

Binance CEO Changpeng Zhao, or CZ, attributed the move to recent changes in stablecoins and banks. With the US government’s scrutiny of BUSD, Binance intends to limit its use and focus on assets like BTC, ETH, BNB, and others.

CZ announced the conversion on Twitter and emphasized the transparency of the fund movements, which occurred on-chain. The move has received positive feedback from the community, with some noting the buying pressure on BTC, ETH & BNB.

Source: Twitter

The CEO soon after posted confirmation of the transaction, along with the address, commenting on the transaction process, “Took 15 seconds and costs $1.29. Imagine moving $980 million through a bank before banking hours on a Monday.”

HSBC acquires SVB’s UK arm

HSBC has acquired Silicon Valley Bank’s UK business for ￡1, following the collapses of several banks in the sector. The sale was facilitated by the Bank of England and the UK Treasury.

HSBC CEO Noel Quinn commented that it makes “excellent strategic sense” for the bank’s commercial franchise. He added that Silicon Valley Bank UK customers can continue to bank as usual, with their deposits backed by HSBC. The sale includes ￡5.5 billion in loans and ￡6.7 billion in deposits. The move has been welcomed by investors and is seen as a positive step in minimizing the damage caused by recent banking collapses.

Multiple banks stock trading halted over volatility

Several bank stocks have been halted due to volatility following the closure of Silicon Valley Bank and Signature Bank. Charles Schwab, Western Alliance, and First Alliance are among those affected. President Joe Biden reassured the public that despite the closures, the banking system is safe.

Many banks are experiencing significant drops in their stock prices. First Republic Bank‘s stock was down 55% during pre-market hours on March 13, and it remains to be seen who will be affected next.

First Republic Bank has disclosed that it has more than $70 billion in unused liquidity to fund operations, which does not include funding it is qualified to receive under the Fed’s recently introduced Bank Term Funding Program (BTFP). The BTFP allows banks to take advances from the Fed for up to a year by pledging treasuries, mortgage-backed bonds, and other debt as collateral.

First Republic Bank has also received additional liquidity from JPMorgan Chase and the Fed, which has strengthened its liquidity profile. Chairman Jim Herbert and CEO Mike Roffler have assured customers that First Republic’s capital and liquidity positions are very strong and that its capital remains well above the regulatory threshold for well-capitalized banks.

Bitcoin at $24,000 amid US bank crash

BTC surged past $24,000 while the Federal Deposit Insurance Corporation (FDIC) announced that depositors of Silicon Valley Bank have regained unrestricted access to their funds, following the successful transfer of deposits to a new bridge bank.

Source: CoinMarketCap

White House says Silicon Valley Bank is “not a bailout”

California’s Silicon Valley Bank, which was shut down due to concerns about its inability to obtain capital, is now considered one of the largest banking crises since Lehman Brothers triggered the 2008 financial crisis. However, the White House has emphasized that this closure is not a bailout.

The Treasury has announced that federal regulators will safeguard all deposits at SVB, including money that isn’t normally covered by federal deposit insurance (which has a ceiling of $250,000) — a move designed to prevent the tech-focused bank’s rapid collapse from infecting the rest of the US financial system.

President Joe Biden has stated that SVB will not receive a government bailout, even after regulators seized the bank’s assets. He also assured taxpayers that they will not bear any losses, saying, “No losses will be borne by the taxpayers. Let me repeat that, no losses will be borne by the taxpayers.”

Tuesday, March 14, 2023

Citadel CEO says US capitalism is breaking down before our eyes after Fed rescued SVB

According to the CEO of Citadel Hedge Fund, Ken Griffin, the recent collapse of banks in the United States has led regulators to intervene, prompting him to claim that capitalism is deteriorating.

The US Treasury, Federal Reserve, and Financial Deposit Insurance Corporation intervened to rescue the customers of Silicon Valley Bank and Signature Bank. Griffin believes that taxpayers should not have to bail out institutional investors and that the government’s bailout of depositors signifies a loss of financial discipline. On the other hand, skeptics suggest that regulators missed warning signs, prompting the Fed to intervene.

Griffin claimed that the US economy is strong enough to take care of itself and that a failure to do so would have been a great lesson in moral hazard. He believes that losses to depositors would have been minor, risk management is critical, and the issue of moral hazard can be addressed from a position of strength, given the current state of full employment, minimal credit losses, and robust bank balance sheets.

In September 2022, Griffin warned the Fed of a severe recession should it allow “Americans’ inflation expectations become unanchored.”

JPMorgan Chase & Citigroup are trying to handle largest movement of deposits in over a decade

Incited by last week’s bank fallouts, a significant movement of deposits has occurred. Clients in droves march to large US banks to transfer their funds from smaller lenders. To accommodate these requests, JPMorgan Chase, Citigroup, and other major financial institutions are expediting their usual “onboarding” processes.

To meet the heightened demand, JPMorgan has lowered the waiting period for opening an account and is accelerating the process by which corporate customers can access funds to pay their employees by the end of the week. Citigroup’s private bank is attempting to open accounts as soon as an application is submitted, rather than the usual one to two weeks.

Some are questioning whether JPMorgan Chase and Citigroup are taking advantage of SVB’s collapse. While executives claim they are proceeding with caution and not actively pursuing clients from smaller competitors, their advantage in the situation is clear. According to Wells Fargo banking analyst Mike Mayo, “Goliath is winning in these less certain times.”

The US Government announced emergency measures, including the Fed’s new lending facility for banks (the BTFP), which saved additional banks from failing. However, depositors continue to transfer their funds to larger institutions such as JPMorgan, Citigroup, and Bank of America.

Several of SVB’s business clients in the technology and life sciences sectors were concerned they would not be able to pay personnel or suppliers before authorities stepped in with a promise to guarantee all deposits. As a result, large asset managers have reported an influx of money being removed from lenders.

The fall of SVB has caused some depositors to realize the danger of keeping all of their capital with one institution. How long will it take them to realize that they cannot rely on an institution at all (and more importantly, that they don’t have to)?

Bitcoin breaks $26,000

Over the course of a day, Bitcoin gained $1K, closing in on $26,000. The cryptocurrency saw a stable growth since the beginning of 2023, despite the hardships experienced by the crypto industry in the year prior and the escalation of restrictions the US government has attempted to impose upon DeFi.

Source: CoinMarketCap

Moody’s cuts outlook on US banking system to negative from stable

Moody’s Investors Service has downgraded the outlook on the US banking system from ‘stable’ to ‘negative’, citing a rapidly deteriorating operating environment following the collapse of Silicon Valley Bank and closure of Signature Bank. Silvergate, the first of the three to close, doesn’t warrant the same worries, perhaps due to its liquidation being voluntary.

Moody’s warned of the potential for downgrades or reviews for seven individual institutions, and noted that the downgrade was due to actions taken to shore up the industry, as well as other banks with unrealized losses or uninsured depositors that remain at risk. The collapse of SVB Financial and Signature Bank has raised concerns about the health of the banking sector as a whole, prompting Moody’s to issue a grim prognosis for the industry.

Signature Bank sued by shareholders for fraud

Shareholders of Signature Bank filed a lawsuit against the bank and three former top executives, alleging that the bank claimed to be financially sound just days before state regulators seized it.

The lawsuit, filed by the Rosen Law Firm in Brooklyn federal court, claims that Signature Bank misrepresented and failed to disclose adverse facts, including that it did not possess the strong fundamentals it claimed to have prior to its takeover, making it vulnerable to regulatory action by the New York Department of Financial Services (NYDFS). As a result, the lawsuit alleges that the defendants’ public statements were materially false and misleading. The Rosen Law Firm is seeking unspecified damages.

The lawsuit comes after the same law firm sued Silicon Valley Bank on Monday. Signature Bank, which has a large real estate lending business and ties to the cryptocurrency industry, was closed by state authorities as a result of the SVB collapse. Governor Kathy Hochul sought to reassure depositors that their money was secure after the state takeover.

Signature Bank suffered a crisis of confidence after losing billions of dollars in a bank run triggered by the seizure of SVB Financial Corp on Friday. It is the third-largest bank in US history to experience financial failure.

California governor failed to disclose personal ties to SVB while lobbying for a bailout

According to a report by Business Insider, Governor Gavin Newsom of California failed to disclose his connections with Silicon Valley Bank while lobbying for a bailout. The report highlights Newsom’s “substantial personal ties” to the now-defunct bank, including personal accounts, three wineries, and his wife’s charity. California laws prohibit government officials from potentially influencing decisions in which they have a financial interest.

Newsom’s connection to the bank was first reported by Ken Klippenstein, who noted that the governor had maintained personal accounts at SVB for years. It is unclear whether Newsom’s accounts were active at the time of the bank’s closure and government bailout. If they were, Newsom would have benefited from government action taken to aid depositors.

Although Newsom’s office stated that they had been in touch with the White House and Treasury to “stabilize” the innovation ecosystem, the lack of disclosure of his connectivity to the bank is a breach of California legislation.

Wednesday, March 15, 2023

SVB donated $70M to BLM Movement and related causes

Recent investigations into Silicon Valley Bank’s dealings have revealed red flags that several agencies are now scrutinizing. The US Securities and Exchange Commission (SEC) is now examining the stock sales of SVB executives prior to the bank’s collapse.

According to a new database from the Claremont Institute, the bank donated around $70 million to the Black Lives Matter Movement and other social causes. In 2020, SVB reportedly pledged to enhance its commitment to diversity, equity, and inclusion (DEI) in the workplace. Many companies rushed to do the same around the same time, as protests following the murder of George Floyd persisted across the country.

According to Will Hild, the Executive Director of Consumers’ Research, SVB’s left-wing activism and subsequent failure is “yet another indication that SVB was focused on virtue signaling, instead of protecting their customers’ deposits.” He added that companies that prioritize ESG scores and woke politics often fail to serve their customers effectively, or will inevitably reveal themselves to be hiding nefarious activity behind the curtain of progressiveness.

While this information is virtually unverifiable, the black-and-white political division of the US public didn’t fail to discuss whether the bank’s socio-political endeavors factored into its demise. Regardless, SVB’s failure remains a lesson in management disaster.

$10 trillion asset manager BlackRock CEO says more bank seizures could occur after SVB

Laurence Fink, CEO of investment company BlackRock, has warned that the regional banking sector in the US remains at risk following the collapse of Silicon Valley Bank and more bank seizures may happen going forward.

The banking crisis triggered by rising interest rates may not claim more victims, but Fink believes some banks will reduce lending to refine their balance sheets, leading bank clients to turn more to capital markets for financing.

In his annual letter, Fink said that the financial industry could have something called “liquidity mismatches” after the regional banking crisis. As for inflation, Fink anticipates that a more divided world will make inflation persistent, likely staying closer to 3.5% or 4% in the next few years.

Although the regulatory response has been swift and decisive actions have helped stave off contagion risks, markets remain on edge, and it’s too early to know how widespread the damage is.

Fed swaps now shows a 100 BPS rate cut by December from its expected peak

The US banking sector has undergone significant changes in recent days, with the Federal Reserve signaling a significant shift in its monetary policy stance. The Fed funds rate swap market is now forecasting a 100 basis point rate cut by December 2023, a significant increase from previous market expectations of a 25 BPS rate cut by year-end.

If this rate cut were to occur, it would have a significant impact on the US economy and financial markets. Therefore, it is essential to keep a close eye on economic statistics and the Fed’s activities in the coming months. A rate cut could lead to a decrease in interest rates and borrowing costs, making it easier and cheaper for companies and individuals to borrow money. This could stimulate economic activity and potentially boost stock prices.

However, a rate cut also could lead to a decrease in the value of the dollar, potentially making imports more expensive and increasing inflation, or lead to increased trading activity as market participants adjust their positions in response to the changing interest rate environment. This could lead to increased volatility in the market.

The bond market is also pricing in rate cuts this year and lowering expectations for future rate hikes due to the collapse of Silicon Valley Bank. Goldman Sachs and Barclays Bank are among the prominent financial institutions suggesting that the Fed takes a break next week.

Investment strategist Angelo Kourkafas believes that the Fed’s actions to back up deposits are to restore confidence in the system rather than to offer stimulus or loosen conditions. However, it has resulted in tighter financial conditions, with credit spreads widening despite falling yields.

Thursday, March 16, 2023

Fed to launch instant payments system “FedNow” in July

The US Federal Reserve announced that its ‘FedNow’ instant payments system will be launched in July. According to the press release, the service will commence with a range of core clearing and settlement functionality and value-added features, with additional features being integrated in future releases to enhance safety, resiliency and innovation.

Ken Montgomery, the first Vice President of the Federal Reserve Bank of Boston and FedNow program executive, expressed excitement about the forthcoming launch of FedNow, which will allow every participating financial institution, regardless of size or location, to offer a modern instant payment solution. He urged financial institutions and industry partners to prepare to join the FedNow Service as soon as possible, as growing the network of participating financial institutions will be key to the system’s success.

Tom Barkin, President of the Federal Reserve Bank of Richmond and FedNow Program Executive Sponsor, referred to the payments system as a “leading-edge” innovation that will help financial institutions better support nearly every aspect of the economy. The only detectable innovation, however, is that FedNow promises to get rid of the “buildup of inner-bank obligations” which happens with some services when the user is provided with funds before they are settled between banks.

Truly-instant payments are not groundbreaking by any means (recall CZ’s seamless $980 million transfer earlier in the story?), but it is a prehistoric “solution” to a government unwilling to adopt truly innovative payment systems, like blockchain transactions.

US Congressman says “Biden administration is weaponizing market chaos to kill crypto”

US Congressman Tom Emmer has accused the Biden Administration of attempting to ban cryptocurrencies by “weaponizing market chaos.” Emmer has sent an investigative letter to FDIC Chairman Gruenberg seeking additional information about the recent banking closures and their connection to the crypto industry.

The sudden closures of three prominent crypto-friendly banks have sparked newfound panic in the financial sector, leading to accusations that regulators are sending an anti-crypto message.

In his letter to Gruenberg, Emmer criticized regulators for “weaponizing recent instability in the banking sector” and warned that this could lead to “broader financial instability.” Emmer also introduced a bill to provide regulatory clarity for the blockchain ecosystem, as the SEC’s persecution of various entities in the crypto industry made the lack of defined regulation apparent and hazardous.

The situation is of great interest to the crypto industry, with the community closely monitoring happenings, even as the crypto market experienced a seemingly-effortless recovery.

$2 trillion could be injected into the US banking system by the Fed’s emergency loan program, JPMorgan says

In response to the SVB collapse, JPMorgan Chase & Co has revealed that the Fed’s Bank Term Funding Program (BTFP) is expected to inject $2 trillion into the US banking system to alleviate the ongoing liquidity crisis.

The BTFP offers additional liquidity to struggling financial institutions without the need to sell securities. JPMorgan strategists believe that the program should provide enough reserves to the banking system to address reserve shortages. While it is unlikely that large banks will utilize the program, it is estimated that its maximum utilization will be close to $2 trillion.

JPMorgan strategists have attributed the tighter liquidity to the Fed’s quantitative tightening and rate rises, which have caused a switch from bank deposits to money-market funds. To stabilize the banking industry, the Fed may forgo raising interest rates next week, causing the two-year Treasury bond yield to fall by over 60 basis points this week.

$30 billion to be deposited into First Republic Bank by JPMorgan, Bank of America, Wells Fargo, Citi, and more

Several major banks in the US have joined forces to help a struggling financial institution, First Republic Bank, by providing up to $30 billion in deposits. The plan, which is supported by the US government, is aimed at stabilizing First Republic Bank and addressing the growing concern in the banking sector following the recent shutdowns of three major crypto-friendly banks.

The rescue effort involves JP Morgan, Bank of America, Wells Fargo, Citi, Morgan Stanley, US Bancorp, Truist Financial Group, and PNC Financial Services. According to sources, the banks will deposit $5 billion each, with smaller banks contributing smaller amounts.

Source: MarketWatch

First Republic Bank’s stock fell 36% on Thursday, prompting the bank to explore potential solutions, including a possible sale, to avoid a fate similar to that of Silicon Valley Bank.

Friday, March 17, 2023

Fed ‘stands ready’ to provide liquidity to eligible institutions

Federal regulators have taken measures to calm the banking sector crisis. The Federal Reserve has announced?its readiness to provide liquidity to eligible institutions via the discount window. The recent borrowing of a record-high amount of $164.8 billion by US banks from the Fed further emphasizes the need for support.

Federal agencies have also been monitoring smaller banks, including First Republic Bank, and have welcomed the decision by large banks such as JP Morgan, Bank of America, and Wells Fargo to inject $30 billion in liquidity to aid First Republic Bank.

This action has been praised by policymakers as a demonstration of the resilience of the US banking system. But is banks giving away a portion of their money for a chance to keep the financial system’s life support going praise-worthy? The joint efforts of the Fed and several of America’s largest banks to keep their outdated industry going at all cost is nothing but harmful in the long run.

Over the past week, US banks have borrowed a total of $164.8 billion from two Federal Reserve backstop facilities. The majority of the funds, $152.85 billion, were borrowed through the discount window, marking a new record high. In addition, banks have already borrowed around $11.9 billion from the Bank Term Funding Program, launched merely four days ago.

Bitcoin reaches $27,000

Source: CoinMarketCap

Bitcoin continues a steady incline. Due to the inadequate function of banks, more people are turning to protocol-based governance for stability and decentralization.

SVB files Chapter 11 bankruptcy

Silicon Valley Bank has announced its plans to seek bankruptcy protection in order to find buyers for its assets. The bank filed for Chapter 11 bankruptcy at the United States Bankruptcy Court for the Southern District of New York in an effort to preserve the value of its assets. The filing notes that SVB Securities, SVB Capital’s funds, and general partner entities are not included in the process.

This bankruptcy protection plan comes after the bank announced on March 13th that it was exploring alternative options. However, California regulators closed the bank this week and appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver. Going forward, the FDIC has the authority for the disposition of their assets.

Currently, SVB has around $2.2 billion in liquidity, along with cash from its interests in SVB Capital and SVB Securities, as well as valuable investments held in securities accounts. The bankruptcy process will allow the bank to preserve most of its value before considering other strategic options. Additional filings related to the bankruptcy court proceeding will be filed in the coming days.

William Kosturos, the Chief Restructuring Officer of SVB Financial Group, wrote in the filing that “The Chapter 11 process will allow SVB Financial Group to preserve value as it evaluates strategic alternatives for its prized businesses and assets, especially SVB Capital and SVB Securities. SVB Capital and SVB Securities will continue to operate and serve clients, led by their longstanding and independent leadership teams.” The filing also noted that “SVB Financial Group will continue to work cooperatively with Silicon Valley Bridge Bank to find practical solutions to maximize the recoverable value for stakeholders of both entities.”

Democrat lawmakers call for investigation into Goldman Sachs’ role in SVB collapse

Democratic lawmakers are calling for an investigation into the collapse of Silicon Valley Bank and the potential role of Goldman Sachs Group, according to a letter sent by US Representative Adam Schiff and 19 other members of the California congressional delegation to regulators and the Justice Department. In a letter (to the DOJ and SEC), lawmakers wrote,

“We support your efforts to launch an investigation and hope that unlike 2008, we hold bank executives accountable by ensuring they are held responsible — the burden of their actions should not land on the shoulders of consumers or taxpayers.”

The lawmakers are concerned about the role of Goldman Sachs in advising SVB and purchasing its bond portfolio.

Colorado to accept crypto for tax payments by end of summer, Governor Polis says

Colorado will begin accepting state tax and fee payments in crypto, in line with Governor Jared Polis’ earlier statement that the state would welcome alternative forms of payment.

The announcement was made by Polis during a speech at Denver Startup Week. The payments will be processed using PayPal’s cryptocurrency platform and limited to Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.

While the state is not considering cryptocurrency tax payments as an investment vehicle, officials hope to offer taxpayers a wide range of payment options. The funds received will be transferred to the state’s coffers in US dollars within five business days, with PayPal collecting service fees.

Despite the severely negative outlook certain branches and members of the US government have on cryptocurrencies, other states, including Utah, are expected to follow suit in accepting crypto as a form of payment very soon.

European Parliament member calls for ban on crypto

Meanwhile, former Belgian Finance Minister and European Parliament member, 67-year-old Johan Van Overtveldt, has called for a ban on cryptocurrency, claiming that the digital asset industry provides “no economic or social value.”

Van Overtveldt made these statements ahead of the European Parliament preparing to vote on “landmark crypto licensing rules for the bloc”.

Van Overtveldt’s call for a crypto ban was prompted by recent developments in the banking sector, not limited to the shutdown of three crypto-friendly banks. Rather, Van Overtveldt is more concerned with paving a future for the likes of troubled Credit Suisse and First Republic Bank, which don’t have anything to do with the “highly-risky cryptocurrency assets” Silvergate, SVB, and Signature were tied to.

In a tweet, Van Overtveldt called for a strict ban on cryptocurrencies, labeling them as pure speculation. He also compared the ban on drugs to a potential ban on cryptos, stating that if the government bans drugs, it should also ban cryptocurrencies.

Saturday, March 18, 2023

186 banks found to have similar vulnerabilities as SVB

A group of economists has conducted a study that has identified 186 US banks that face similar risks to those that led to the collapse of Silicon Valley Bank after customers withdrew their uninsured deposits as its assets diminished due to increasing interest rates.

The economists evaluated the banks’ asset books, market value losses, and funding percentages, particularly from uninsured depositors holding accounts worth over $250,000. Their findings suggest that if half of these uninsured depositors were to withdraw funds rapidly, even insured depositors might face impairments due to insufficient assets available for all depositors. This could require more intervention from the FDIC.

However, the research has a significant limitation as it doesn’t consider hedging strategies that could safeguard many banks against rising interest rates. The economists noted that “our calculations suggest these banks are certainly at a potential risk of a run, absent other government intervention or recapitalization.”

Traditional investment banking giant Credit Suisse collapses

Credit Suisse Group AG CFO Dixit Joshi and his team are set to evaluate strategic scenarios for the struggling Swiss bank over the weekend, which could be a decisive moment for the bank’s future. On Thursday, the Swiss central bank provided a $54 billion bailout to alleviate liquidity concerns following a fall in its shares and bonds, which amplified concerns over a global banking crisis. However, experts suggest that this may not be sufficient.

Credit Suisse‘s shares have been plummeting since 2021 due to multiple scandals, management changes, substantial losses, and an uninspiring strategy. The decline was triggered by losses linked to Archegos and Greensill Capital. Furthermore, the Chairman resigned in January 2022 for breaching COVID-19 rules, and the new CEO, Ulrich K?rner, failed to gain investor confidence with his strategic review in July.

The bank’s clients withdrew 110 billion Swiss francs ($119 billion) of funds in Q4 2022, leading to the biggest annual loss of 7.29 billion Swiss francs since the financial crisis. In December, Credit Suisse raised 4 billion Swiss francs from investors.

Credit Suisse has stated its intention to borrow up to $54 billion to boost liquidity and investor confidence, but analysts doubt that it will suffice. To restore market confidence, winning the support of strategic investors, including Qatar Investment Authority and Saudi conglomerate Olayan Group, could be a viable option. Additionally, Credit Suisse owns an asset management business and a stake in SIX Group, which runs the Zurich stock exchange, which could be sold. The bank has shifted its focus to catering to affluent clients and plans to spin off its volatile investment banking business.

Credit Suisse is among the world’s largest wealth managers and is one of 30 global systemically important banks. Failure of such banks could cause widespread disruptions in the financial system. The bank has a presence in over 50 countries, with more than 150 offices catering to entrepreneurs, wealthy individuals, and companies. Although Swiss regulators have suggested that UBS and Credit Suisse merge, both banks have shown no interest in doing so.

Microsoft reportedly building crypto wallet for Edge browser

Microsoft is currently testing a non-custodial digital asset wallet built on Ethereum that will be integrated into its Edge web browser. The wallet is designed to allow customers to directly manage and store their digital assets within the Edge browser, and users will have complete control over their funds.

The wallet requires users to generate their own passwords and recovery phrases to secure their accounts, and supports multiple Ethereum addresses. Microsoft has partnered with ConsenSys to provide a swap feature that supports several cryptocurrencies and stablecoins. The company is encouraging users to test the wallet and provide feedback, as Microsoft is interested in exploring the world of digital assets and NFTs.

Microsoft’s Edge will not be the first to roll out a crypto wallet extension, but the announcement joins the growing list of entities which had revealed themselves to either have strong ties to and back doors in the traditional financial system, or those who are ready to embrace a change towards non-reliance on third parties.

Crypto market cap surpasses $1.2 trillion

CoinGecko reports that the global cryptocurrency market cap has exceeded $1 trillion, with contributions from altcoins such as ETH, DOGE, and TON supporting BTC.

In a daily time frame, Bitcoin has broken out of the double bottom pattern and is likely to close above the neckline at $20,367. However, it faces immediate resistance from the 100-day Simple Moving Average (SMA) at $20,908, the 20-week SMA at $21,046, and the 100-day Exponential Moving Average (EMA) at $21,227, which could slow down its rally. A daily close above all these resistances could easily push the price above $23,000.

The total crypto market cap broke out from the neckline of the double bottom at $940.122bn and is currently battling resistance from the 100-day SMA and the 100-day EMA, despite trading above the 20-week SMA. If these resistance levels are overcome, the price could reach the $1 trillion mark.

The $1 trillion market cap is a significant milestone for the crypto community, which is pleased to see bullish strength in the crypto market for the first time in weeks.

White House & Warren Buffett in talks about banking crisis

Berkshire Hathaway CEO Warren Buffett has been in contact with senior officials in President Biden’s administration as the banking crisis unfolds. While the calls have centered around the possibility of Buffett investing in the US banking sector, the billionaire has also given advice and guidance more broadly about the current turmoil.

Buffett has a track record of stepping in to aid banks in crisis, leveraging his cult investing status and financial heft to restore confidence in ailing firms. In 2011, Bank of America Corp. won a capital injection from Buffett after its stock plunged amid losses tied to subprime mortgages. Additionally, Buffett provided a $5 billion lifeline to Goldman Sachs Group in 2008 to shore up the bank following the Lehman Brothers’ collapse.

Representatives for Berkshire Hathaway and the White House did not immediately respond to requests for comment. Officials at the US Treasury Department declined to comment.

Biden’s team, mindful of potential political backlash, has moved to orchestrate backstops that do not require direct government spending from taxpayers, including the Fed’s actions. Big US banks voluntarily deposited $30 billion to stabilize First Republic Bank, a move regulators described as “most welcome.” Any investment or intervention from Buffett or other figures would continue that playbook, seeking to stem the crisis without direct bailouts.

Sunday, March 19, 2023

Switzerland considers nationalizing Credit Suisse

The Swiss government is considering measures to protect Credit Suisse, including the possibility of partial or full nationalization of the bank.

While UBS has offered to purchase Credit Suisse for up to $1 billion, nationalization appears to be the only viable option at this point. The decision, however, is subject to fluctuation and depends on various factors that are yet to be determined by the authorities. Taking over a bank can be complex due to regulatory hurdles and other challenges.

The collapse of Credit Suisse comes after the shutdowns of Silvergate, Silicon Valley, and Signature, and has no obvious ties to any aforementioned bank nor involvement with crypto firms. It is just another traditional bank struggling to stay afloat. Meanwhile, the grass really is greener on the other side.

Bitcoin exceeds $28,000

Bitcoin continues to gain momentum amid the banking crisis, showing that more and more investors are recognizing its security as a store of value.

Source: CoinMarketCap

Ether and a number of other cryptocurrencies, including Ripple’s XRP, also experienced value growth over the course of the month. This is unsurprising, as cryptocurrencies like BTC are not dependent on the state of banks.

Monday, March 20, 2023

7 major banks to increase US dollar liquidity via swap line

Seven major central banks announced a coordinated effort to increase the provision of US dollar liquidity through swap line arrangements.

The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank joined forces to expand the frequency window of 7-day maturity operations from weekly to daily.

Swap lines are agreements between central banks that enable them to exchange currencies and distribute them to commercial banks in their country.

The central banks involved in this initiative hope to improve the effectiveness of swap lines in providing US dollar funding, and the daily operations will start on March 20 and continue at least through the end of April.

This effort is seen as a key tool to preserve financial stability and prevent market tension from affecting the macroeconomy. It is also a stark example of how easily willing the government can be to bend rules for some.

Florida Governor DeSantis calls for ban on CBDCs

Florida Governor, Ron DeSantis, has expressed his support for a legislation that would ban the use of Central Bank Digital Currencies (CBDCs) as money within the state.

In a speech shared on Twitter, DeSantis called on the legislature to forbid the use of CBDCs to protect the financial freedom of citizens within the state. He emphasized that the state would continue to encourage financial innovation while protecting against government surveillance over personal finance.

The discussion around CBDCs has been a crucial topic in the digital asset industry as countries work on pilot programs for the implementation of such an asset. However, the use of CBDCs would allow officials a direct view of all consumer activities, which would lead to the misuse of information.

DeSantis also pointed out the stark difference between CBDCs and cryptocurrencies, stating that the latter is decentralized in nature.

Tuesday, March 21, 2023

Texas introduces bill to protect the rights of Bitcoin holders, miners, and developers

A proposed legislation in the Texas House aims to enhance the state’s role in Bitcoin development while safeguarding the rights of individual BTC owners.

The Texas State House of Representatives has introduced a bill that seeks to fully protect and welcome Bitcoin economy. Co-authored by Natalie Smolenski and Jason Brett of the Bitcoin Policy Institute and sponsored by Rep. Cody Harris (R), House Concurrent Resolution 89 argues that the Chinese government’s ban on bitcoin mining and trading in 2021 is authoritarian and opposes the values of the United States.

The bill asserts that the Lone Star State’s principles regarding items of value in the Texas Constitution should extend to Bitcoin, including protecting individuals who code or develop on the network and ensuring that Bitcoin miners are not restricted by any law or resolution that limits securing the network.

RESOLVED, That those in the United States and the broader

global network who work on Bitcoin coding, programming, and mining,

shall know by this resolution that the Bitcoin economy is welcome in

Texas, and that the Texas Legislature shall always seek to protect

the rights of its citizens under the law and foster the growth and

development of local businesses; in addition, all those in the

broader community who choose to own Bitcoin as a manner of storing

their wealth and transacting peer-to-peer with other law-abiding

Texas citizens shall always feel free and safe in their ownership

and use of Bitcoin in the state of Texas.

Furthermore, the bill affirms that Section 9, Article I, of the Texas Constitution protects the right of Bitcoin owners against unreasonable seizures or searches, including digital possessions like cryptocurrencies.

All Bitcoin owners are entitled to enjoy the privileges associated with the cryptocurrency, and these protections shall be extended to them.

The bill seeks to reassure those who work on Bitcoin coding, programming, and mining that their individual rights and those of their enterprises are not only welcome but also safeguarded in Texas.

If the bill is approved by the House, it will be passed to the Senate and then to the Governor’s office. This legislation could position Texas as a hub for Bitcoin development and activity in the United States.

Sweden’s largest pension fund sells all First Republic Bank shares at near $1 billion loss

Alecta, Sweden’s largest pension fund, has sold all of its shares in First Republic Bank at a loss of $728 million, according to Yahoo.

Although First Republic Bank was on the verge of collapse, it was saved by a massive rescue effort led by several large US banks. Nonetheless, Alecta decided to sell all of its shares in the bank at a significant loss, with spokesperson Jacob Lapidus confirming the move to Yahoo.

But what did it take to trigger a collapse, counteracted only by the monetary intervention of other, larger banks? Next to nothing.

The 14th largest commercial bank in the US, First Republic Bank, was affected by the failure of Silicon Valley Bank. The two banks share similarities in terms of their size and mostly uninsured deposit bases.

First Republic Bank, like many other regional banks in the US, relies heavily on its depositors. However, there are concerns that depositors may withdraw their funds. SVB faced financial issues as its core business, banking venture-capital firms and their startups, was losing money, leading to a cash shortfall. The bank had also invested heavily in long-term bonds that lost value due to the Fed’s interest rate increases over the past year.

When the bank tried to raise cash, depositors, who were mostly business customers with accounts beyond the $250,000 FDIC protection limit, withdrew their funds. This resulted in other uninsured depositors taking note, and First Republic Bank, which had around two-thirds of its deposits in uninsured accounts, came under scrutiny.

The end is nigh.. for who?

For someone who isn’t busy swimming in the Fed’s reserves, the lumping of First Republic Bank’s failure into crypto-bank-collapse-contagion territory seems far-fetched and downright lazy. Banking failure across the board has a very simple reason – centralized governance is its name.

But banks and Feds and Treasuries and most of all, governments, cannot imagine life without a centralized authority. Likely because in the event that money was globally governed by a decentralized entity – a protocol – the need for an all-powerful government and its authority would cease to exist.

Perhaps that is why so many laws are proposed and passed while reputable media companies shuffle through their list of anxiety-inducing titles and financial misinformation. As long as decentralized finance seems too hard to understand, or just a scam, the average person will be willing to put up with a lot of hegemony and oppression – of knowledge, of rights, of financial autonomy.

After all, the government and the banks know better.. Not. The aforementioned mentality should have been left behind with the divine right and serfdom. Until that becomes clear, complacency, inequality, ignorance, abuse of power, and poverty shall prosper.

This concludes part 2 of a three-part breakdown of the Silvergate-Silicon Valley Bank-Signature story. Part 3 will summarize the fallout, and lead a critical discussion of banking, regulation, overreaching, and the future of crypto.