The US Government Accountability Office (GAO) has released a preliminary review of Silicon Valley Bank and Signature Bank's failures, which included exposure to cryptocurrency industry deposits.
"Poor governance and suboptimal risk management practices" contributed to Signature Bank's collapse in March, the GAO said in a May 11 report. GAO did not explicitly report digital assets as the reason for the bank's collapse, but mentioned exposure to the cryp to industry as a potential reason. “Signature Bank's foray into the digital asset industry saw liquidity decline in the months leading up to its collapse,” the report said. “FDIC staff say Signature Bank management was unable to fully understand the bank's liquidity position in the days and hours leading up to the failure."
While the GAO largely made no mention of crypto-friendly Silvergate Bank, which went into voluntary liquidation in March, the report said Signature was “considered similar.” Signature holds roughly $12 billion in deposits tied to digital asset companies in 2022, but intends to reduce its exposure to the crypto industry. Oversight of failed banks was discussed by US lawmakers at a hearing on May 11, Michael Clements, director of financial markets and community investing at the GAO, said at the hearing that bank regulators had al ready done so before the failures of Silicon Valley Bank and Signature Bank. identified their concerns, but “no time for escalated regulatory action.” Responding to a question from Tennessee Rep. John Ross, Clements said the Government Accountability Office reviewed “large deposits from the digital asset spa ce .” ,To consider whether encryption caused the failure of Signature.
"[Signature] just holds deposits and operates accounts," Clements said. "After some turbulence in 2022, especially FTX, some of those deposits did start to dwindle." Different regulators offered their views on the potential link between exposure to cryptocurrency rencies and these bank failures. Adrienne Harris, director of New York's Department of Financial Services, reportedly said any connection between Signature's failure and cryptocurrencies was “ridiculous,” describing the events as more like a traditional bank run. Many regulators and laws makers continue to cite the failures of Signature Bank, Silicon Valley Bank, and Silvergate Bank in discussions around crypto. Following the bank's collapse, cryptocurrency firms including BlockFi and Gemini issued statements claiming sufficient capital to offset the risk or none at all.
