GAO cites publicity to digital belongings in exploring collapse of Signature Financial institution


America Authorities Accountability Workplace, or GAO, has launched its preliminary evaluate of the failures of Silicon Valley Financial institution and Signature Financial institution — and included publicity to deposits from the cryptocurrency trade.

In a report launched on Could 11, the GAO mentioned “poor governance and unsatisfactory risk-management practices” led to the collapse of Signature Financial institution in March. The GAO didn’t explicitly report that digital belongings had been the reason for the financial institution’s failure however talked about publicity to the crypto trade alongside potential causes.

“Signature Financial institution had publicity to the digital belongings trade and declining liquidity within the months previous to failure,” mentioned the report. “FDIC employees mentioned Signature Financial institution administration was unable to completely perceive the financial institution’s liquidity positions within the days and hours earlier than failure.”

Although the GAO largely didn’t point out the crypto-friendly Silvergate Financial institution, which went into voluntary liquidation in March, the report mentioned Signature was “perceived to be comparable.” Signature held roughly $12 billion in deposits related to digital asset corporations in 2022 however meant to scale back its publicity to the crypto trade.

U.S. lawmakers mentioned oversight of the failed banks in a Could 11 listening to, during which GAO director of economic markets and neighborhood funding Michael Clements mentioned financial institution regulators had recognized considerations with Silicon Valley Financial institution and Signature Financial institution earlier than their collapse however “didn’t escalate supervisory actions in time.” In response to questioning from Tennessee Consultant John Rose, Clements mentioned the GAO had reviewed “massive deposits from the digital asset area” in contemplating whether or not crypto had contributed to Signature’s failure.

“[Signature] was merely holding deposits and working the accounts,” mentioned Clements. “Following among the turmoil in 2022, notably FTX, a few of these deposits did begin to fall off.”

Totally different regulators have put forth their very own views on the potential connection between publicity to crypto and the collapse of those banks. Adrienne Harris, superintendent of the New York Division of Monetary Companies, reportedly mentioned any connection between Signature’s failure and crypto was “ludicrous,” describing the occasions as extra of a conventional financial institution run.

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Many regulators and lawmakers proceed to invoke the collapses of Signature Financial institution, Silicon Valley Financial institution, and Silvergate Financial institution in discussions round crypto. Following the financial institution failures, crypto corporations together with BlockFi and Gemini launched statements claiming to have had adequate funds to offset publicity or no publicity in any respect.

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