Crypto-friendly banks mismanaged traditional risks, FDIC head tells Senate hearing

cointelegraph.com:

The United States Senate Banking Committee held a hearing March 28 on the regulatory response to recent bank failures. Officials from the Federal Deposit Insurance Corporation (FDIC), Federal Reserve and Treasury testified. FDIC chair Martin Gruenberg spoke about the causes of the failures of Silicon Valley Bank (SVB) and Signature Bank, including the role of digital assets, and the agency’s responses to the crisis.

High levels of uninsured deposits and rapid growth were common factors in the bank collapses in March, Gruenberg said. Gruenberg’s narrative began with the closing of digital-asset-focused Silvergate Bank, announced on March 8, although that story began with the bankruptcy of FTX.

FTX represented less than 10% of Silvergate Bank’s total deposits, but the bank lost 68% of its deposits in the aftermath of FTX's bankruptcy, setting off a fatal chain of events for the bank. Gruenberg said:

FDIC was informed of the run on SVB on the evening of Thursday, March 9. SVB closed on March 10 and FDIC worked with the bank throughout the weekend, succeeding in reopening the bridge bank the following Monday. Gruenberg noted that, like Silvergate Bank, SVB had concentrated its activities in a single sector — venture capital firms.

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Signature Bank was more diversified than Silvergate Bank or SVB. That was partly because of the bank’s decision to reduce its exposure to digital assets after the FTX bankruptcy and media scrutiny of the bank’s ties to the crypto exchange. The bank received more negative attention related to FTX in February, when it was sued for allegedly facilitating FTX’s commingling of accounts.

Deposit outflows from Signature Bank began March 9