Silicon Valley Bank (SVB) broke news Friday as Federal Deposit Insurance Company (FDIC) regulators rushed in to facilitate a collapse. Depositors were seen standing in long lines in rainy conditions to withdraw any funds they can. SVB is known for banking tech startups, and a large number of deposits are uninsured posing risk to many. The initial run began after SVB sold $21 billion of securities at a loss to to raise money when customers were withdrawing at rapid rates from a slow quarter. A critique of the bank is that it's holding are tech industry heavy. The shockwaves will certainly be felt in the industry as SVB was the 16th biggest bank (assets) at end of 2022.
Now, in a somewhat predictable turn of events, Silvergate Bank is making headlines. Silvergate's name was attached to the fallout from FTX collapse, and dealt with big players such as Coinbase, Gemini, Circle, and Paxos. The bank laid off 40% of its workforce in January as a prelude then confirmed the full liquidation of bank assets on Wednesday, leaving just Signature Bank as a main player in the crypto space. Silvergate Exchange Network (SEN), a service offering round-the-clock settlements shut down the previous week signaling trouble. Silvergate also mentioned a regulatory crackdown by the Department of Justice. Could this be a premonition for other crypto-banking institutions? The fallout can spread. Good news is customers are being guaranteed access to funds as early as Monday.
While Signature Bank is a main player now, their association with Silvergate, FTX, and crypto in general may pose trouble. SB's stock price fell 10% with Silvergate's troubles, and was dealt a class-action lawsuit last month. They already reduced exposure to the digital asset space last year. Where will crypto firms recover now? Good news is the industry is highly adaptable. There are numerous options, inflation is on the fritz, and smart contracts provide lasting incentive to continue. It will be interesting to see if larger banking institutions such as Goldman-sachs and JP-Morgan swoop in during a power void, or if some smaller institutions will move into a more robust position.
Comment your reaction and response below.
