The collapsing dominoes of crypto have reached the crypto banks with Silvergate and Silcon Valley Bank (SVB) closing last week. There are three common factors behind the 2 bank failures this week. Both banks failed to implement proven risk management practices present in the banking industry of managing concentration risk, interest rate risk, asset-liability mismatch and were woefully inadequately prepared for a bank run and reacted to the fast pace of rate increases and deposit withdrawls.
State of Banks in the US – OCC Annual Report
Office of Comptroller of currency (OCC) released the 2022 annual report providing state of the US banking system. In their report, the OCC concludes that the US banking industry remains well capitalized with ample liquidity and is well positioned to face the continuing geopolitical & economic uncertainty and market volatility which was also reflected in the views of the Bank CEO’s in the earnings calls last week.
Falling of the crypto banks
The dominoes continue to collapse in the crypto world with the turn of the crypto banks and lenders now. Over the summer, Crypto banks Celsius, Vauld and broker dealer Voyager have all suspended withdrawals and are in various stages of bankruptcy. These are the latest dominoes to fall in the crypto world as the price of bitcoin has dropped by 50% from last year and is down 69% from its all time high.
State of Banks in 2022
OCC (Office of Comptroller of Currency) which supervises national banks and agencies of foreign banks in US released their semi-annual risk report last week. The report presents key issues facing banks that “pose threats to the the safety and soundness of banks and their compliance with applicable laws and regulations”. The report presents an optimistic message – while the risk of downside growth is increasing due to tightening financial conditions and geopolitical uncertainty the banks continue to be financially strong having navigated the pandemic and are well capitalized to face the economic headwinds.
The Fed Bitcoin Part II
Background: This year prior to starting the war on inflation, the Fed published a paper asking for comments on a Fed coin or a CDBC
Stablecoins – Presidents Working Group (PWG) report
Earlier this month, the Presidents Working Group on Financial Markets (PWG) released a report on Stablecoins. This represents first attempt in designing prudential safeguards for stablecoin issuers.