- Gruenberg brought up the topic during a hearing on Oversight of Prudential Regulators.
- Former SVB CEO cited increasing interest rates as one of the elements in failures.
Poor management and a lack of liquidity were found to be major factors in the demise of Signature Bank. FDIC chairman Martin Gruenberg, on the other hand, thinks the bank should have known better about the dangers involved with cryptocurrencies or it would not have fallen so quickly.
Gruenberg brought up the recent failures of Silicon Valley Bank (SVB) and Silvergate Bank during a recent hearing on Oversight of Prudential Regulators held by the United States House of Representatives Financial Services Committee. This led to significant drops in stock prices and subsequent withdrawals of deposits at other banks.
Dependance on Uninsured Deposits
According to the FDIC’s top risk officer’s assessment of the matter, inadequate management was “the root cause of Signature Bank’s failure.” He pointed out Signature’s lack of precautions about its dependence on uninsured deposits.
Gruenberg elaborated
“Additionally, the bank failed to understand the risk of its association with, and reliance on, crypto industry deposits or its vulnerability to contagion from crypto industry turmoil that occurred in late 2022 and into 2023.”
Former SVB CEO Greg Becker cited increasing interest rates as one of the elements in the bank’s failure, despite the fact that regulators and banking experts believe that deposit runs are one of the primary drivers of bank collapses.
Becker claims that no bank “could survive a bank run of that velocity and magnitude.” Losses of $16.1 billion and $2.4 billion were disclosed by Gruenberg as a consequence of the collapses of SVB and Signature Bank. However, the preliminary examination conducted by the United States Government Accountability Office did not directly attribute the failure of Signature Bank to crypto vulnerability.
