The closure of banks by U.S regulators due to banking failures related to digital asset investments has reignited debates about the accountability of financial institutions and the fairness of regulations concerning business in the crypto industry. Three major banks in the United States – Silicon Valley Bank, Silvergate Bank, and Signature Bank – have all been embroiled in the tumult, raising alarms among investors and the public about the risks associated with cryptocurrency investment.
Martin Gruenberg, chairman of the United States Federal Deposit Insurance Corporation (FDIC) has announced his agency’s plans to return about $4 billion in deposits connected to Signature Bank’s digital asset banking business by early April. In a March 29 hearing of the U.S. House Financial Services Committee, Gruenberg reported on the unsuccessful acquisition of Signature by a subsidiary of New York Community Bancorp (NYCB), and that instead, the deposits related to digital assets will be returned to those affected. Reports had suggested that the FDIC would close all crypto-related accounts not part of the NYCB deal by April 5 if depositors didn’t move their funds.
Signature’s payments platform Signet was also not included in the deal, and is currently in the process of being marketed. Meanwhile, Nellie Liang, Under Secretary for Domestic Finance at the U.S. Treasury Department, claimed that crypto did not “play a direct role” in the failure of either Silicon Valley Bank or Signature Bank at a congressional hearing. Despite some lawmakers and regulators pointing fingers at the banks’ ties to digital asset companies, Barney Frank, a former House of Representatives member and Signature board member, exclaimed that the closure was meant to send a “strong anti-crypto message” even though the bank had no issues with solvency at the time.
This posed a problem for the FDIC as it was tasked with administering the funds and property connected to Signature Bank. Banks interested in acquiring the assets of Signature were asked to submit bids to the FDIC by March 17, with the agency reportedly only considering offers from banks with an existing charter. Furthermore, the FDIC required any buyer of Signature to give up all cryptocurrency business at the bank, indicating a possible bias against the crypto industry. This decision was roundly criticized by U.S Representative Tom Emmer, who argued that the federal government was “weaponizing” issues around the banking industry to go after crypto.
The events concerning the closure of Silicon Valley Bank, Silvergate Bank, and Signature Bank within a matter of weeks has reignited conversations surrounding the U.S government’s stance on crypto and the digital asset banking sector. The FDIC’s decision to reject bids for any crypto-related services calls into question whether regulatory responses to the banking failures were biased in any way, and whether or not any amendments to current regulations are required. Moreover, with signs pointing to the fact that the banks weren’t insolvent and the possible involvement of fraud and money laundering elements, this can potentially set a precedent for similar occurrences in the future.
It is important to hold regulators responsible for how they go about protecting consumer deposits, as well as keeping the banking industry safe and stable in the wake of digital asset banking failures. With the dramatic developments surrounding the three U.S banks, many questions remain unanswered about the effect of these regulatory responses on the future of digital asset banking and the global crypto landscape. As the FDIC processes returns for Signature depositors, the efforts of consumer protection against financial instability are better achieved with a reliable stance and thorough evaluation of risks instead of the use of provocative action. Regulators should ensure the safety and reliability of banking services by providing clear guidance on digital asset banking without compromising the integrity of the institutions. Only then can the positive potential of digital assets be fully realized for the benefit of everyone.
