SB Collapse: GAO Cites Digital Assets Exposure

SB Collapse: GAO Cites Digital Assets Exposure

According to Michael Cements, the United States Government Accountability Office had reviewed “large deposits from the digital asset space.” They reviewed them to consider if cryptocurrencies had contributed to Signature Bank’s collapse

The GAO conducted research after the failures of Silicon Valley Bank and Signature Bank. Subsequently, they released a preliminary review of the collapses, including exposure to crypto industry deposits. 

The GAO released the report on May 11, and it said: “poor governance and unsatisfactory risk-management practices.” They considered these as part of the reasons for the collapse of Signature Bank that took place in March. The GAO did not attribute the bank’s failure to digital assets. But it did acknowledge its exposure to the cryptocurrency industry and provided potential reasons.

“Signature Bank had exposure to the digital assets industry and declining liquidity in the months prior to failure,” the Gao reported. Moreover, they said, “FDIC staff said Signature Bank management was unable to fully understand the bank’s liquidity positions in the days and hours before failure.”

The GAO did not mention Silvergate Bank – a crypto-friendly bank that went into voluntary liquidation in March. But in their report, they said Signature was “perceived to be similar.” Signature had about $12 billion in deposits with companies that dealt with digital assets in 2022, but it wanted less to do with the cryptocurrency business.

The Hearing

On May 11, United States lawmakers discussed in a hearing about the failed banks. GAO director of financial markets and community investment Michael Clements attended the hearing. He said that regulators of Silicon Valley Bank and Signature Bank had identified concerns before their collapse but “did not escalate supervisory actions in time.” After John Rose – Tennessee Representative, questioned Clements, he responded that the GAO had reviewed “large deposits from the digital asset space” to see if crypto had anything to do with Signature’s collapse. 

Moreover, Clements said, “[Signature] was simply holding deposits and operating the accounts. Following some of the turmoil in 2022, particularly FTX, some of those deposits did start to fall off.”

Different regulators have given their own ideas about the issue. They questioned what might have caused these banks to fail if they were exposed to crypto. Specifically, the head of the New York Department of Financial Services, Adrienne Harris, said that any link between Signature‘s failure and cryptocurrency was “ludicrous” and that what happened was more like a traditional bank run.

When talking about cryptocurrency, many regulators and lawmakers still bring up the failures of Signature Bank, Silicon Valley Bank, and Silvergate Bank. After the bank failures, crypto companies like BlockFi and Gemini said in their statements they had enough money to cover their exposure or no exposure at all.


About Dren Hima

Being exposed to the crypto industry for the last few years has given me valuable experience with market analyses (technical and fundamental) as well as blockchain technology in general. As the content editor and a market analyst of Walletor, I strive to share the latest developments of the crypto industry, while also providing a unique educational experience for all Crypto & FinTech enthusiasts.

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