When Banks Collapse: A Tale of Panic, Crypto, and the FDIC
Recently, several banks faced financial turmoil, leading to closures and sparking concerns among depositors. Let’s explore what happened to these banks and how it impacted the banking sector and the world of cryptocurrency.
1. Silvergate Bank: The Beginning of the End
Silvergate Bank, a prominent crypto-friendly bank in California, faced a massive bank run after the collapse of FTX. With over $8 billion withdrawn in Q4 2022, Silvergate had to cut 40% of its workforce and rely on a $4.3 billion loan from the Federal Home Loan Bank of San Francisco. Unfortunately, unexpected security sales led to more losses, and on March 8, Silvergate chose to wind down operations and voluntarily liquidate the bank.
2. Silicon Valley Bank: A Ripple Effect
News of Silvergate’s liquidation spread quickly, and Silicon Valley Bank (SVB) found itself in a similar situation. Despite being listed as one of “America’s Best Banks,” SVB faced a bank run after announcing it would raise $2.25 billion in share sales. Venture firms advised startups to withdraw capital from SVB, causing $42 billion in withdrawals. Unable to meet its cash obligations, SVB was taken into receivership by the Federal Deposit Insurance Corporation (FDIC).
3. Signature Bank: A Puzzling Closure
Signature Bank was the third institution to face closure. The FDIC’s decision to close the bank aimed to protect depositors and stop “systemic risk.” However, the closure was confusing, as Signature held only 7% of total assets in long-dated securities and had a net book value of $7.2 billion. The FDIC reportedly required potential buyers to divest all crypto businesses, leading to accusations of “anti-crypto” actions.
4. The Impact on the Banking Sector
The collapse of these banks exposed the vulnerability of the fractional reserve banking system, particularly in a technologically enabled society. Banks are holding massive amounts of mixed-duration treasuries with significant unrealized losses, and depositors are starting to seek alternative ways to earn yield with less financial risk.
5. The Role of Crypto
As traditional banks face challenges, the world of cryptocurrency may offer new opportunities for depositors and investors. Crypto-friendly banks like Silvergate were once seen as pioneers, but now regulators are questioning the safety and security of these institutions. As the landscape continues to evolve, it remains to be seen how crypto companies will navigate this complex financial environment.
#BankingCrisis #CryptoImpact #FDIC #BankRuns #FinancialPanic
