This is the risk management leader at Silicon Valley Bank. Sorry for the humor that you have to be a certain age to understand. If you don’t get it, use Freespoke to search for it.
I have been following the aftermath of SVB. People are now coming around to the fact that the risk management team at the bank was derelict in their duty. Of course, if you read this blog, you knew that immediately.
But, when I listened to law firms give presentations about it, only one lawyer pointed the finger at SEC Chair Gary Gensler. My pal Pat Daugherty of Foley and Lardner mentioned it early in his comments. Pat is exceptionally familiar and capable with crypto. Maybe the best lawyer out there. He led a company we were invested in across the finish line at the SEC and at the time, they were the only ones with a license to trade security tokens.
He called out the bust of Silvergate as the first domino to fall.
At the time, I thought Pat might have had a tin foil hat on when he commented! But, as you dig into the entire collapse, Silvergate was attacked by the SEC and that led to the run on Silicon Valley. How many clients at SVB were crypto clients? What about First Republic? For sure Signature Bank of NY was a crypto-focused bank.
The attack by Gensler doesn’t excuse risk managers from not being hedged. But, Barney Frank said it was an attack. From the linked WSJ Editorial:
Mr. Frank alleged last week that regulators seized Signature, whose board he served on, “to send a message to get people away from crypto.” It increasingly appears that way. Reuters reported last week that the FDIC was requiring any buyer of Signature to give up all crypto business at the bank. The FDIC denied this.
Turns out, Pat is onto something. I don’t agree with Balaji that Bitcoin will trade $1MM in the next 90 days. I do agree the Fed is in the process of actively going after crypto and clamping down. The SEC is going after highly regulated Coinbase ($COIN). They are suing celebrities, and Gensler is trying to cover the tracks left open by FTX’s Sam Bankman-Fried. SBF donated $30MM to the Democrats and made them look bad. Combine that with recent documented revelations that the Biden’s accepted money from the Chinese, and there are several scandals brewing.
Pat and I did a crypto panel along with James Koutoulas and Professor John McGinnis. Among all that was discussed, I believe Professor McGinnis's closing comment on that panel was the most powerful and is playing out. I have printed this question before, and now it is becoming rhetorical.
“Will the State objectively regulate cryptocurrencies when cryptocurrency has the ability to topple one of the State’s greatest powers, money creation?”
For those that think the crypto army is a very big army, the state has a big army too and they will use it.
Hmmmm https://www.piratewires.com/p/2023-banking-crisis?publication_id=55605&post_id=110130565&isFreemail=true
Just for grins -- the regulatory processes/culture at the SEC, the FDIC, and the Comptroller of the Currency are wildly different.
The SEC has to send you a Wells Notice after failing to get their way in a direct negotiation. Then you have time to deal with them before an enforcement action is initiated and you get to defend yourself in the enforcement action.
Crypto folks have been fighting unsuccessfully w the SEC for years and years.
The FDIC and the Comptroller of the Currency just declare a bank insolvent, turn the lights off, and seize the assets. They don't really negotiate or give you time to fix stuff.
If there is a run on the bank as happened w/ SVB, it is impossible to see what SVB could have done.
There can be no doubt that recent crypto turmoil and bankruptcies were bad for SVB, but did they rise to a level of materiality and did they have anything to do with the unhedged investments held by SVB? No.
JLM
www.themusingsofthebigredcar.com