Crypto did not cause Signature, Silvergate and SVB collapses

A new report from the Congressional Research Service (CRS) showed that crypto losses did not cause the collapses of Silicon Valley Bank and Signature Bank, or even Silvergate, but fear of crypto exposure was the driving force behind the bank runs.

The CRS, a non-partisan agency which acts as a trusted resource to inform members of Congress, published ‘The Role of Cryptocurrency in the Failures of Silvergate, Silicon Valley, and Signature Banks’ on Tuesday. The report contradicts the popular narrative that the banks’ failures were caused by significant exposure to FTX and other failed crypto firms, or by losses from their own crypto products, ...

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While the banks appear to have withstood direct exposures to specific crypto firms, some nevertheless experienced significant depletion of deposits as the steady series of failures deepened the crypto market downturn. After reaching an all-time high of around $3 trillion in November 2021, crypto lost more than two-thirds of its market capitalization by December 2022. As digital asset prices fell, centralized crypto platforms and stablecoin issuers experienced redemptions, likely causing them to draw down deposits held at these banks. To meet withdrawal demand, banks sold ostensibly safe securities for losses, affecting their liquidity and—in some cases—their solvency. In the fourth quarter of 2022, Silvergate’s deposits fell by more than half, hastening a drop that began earlier in the year (see Figure 2). Signature’s deposits fell by around 15% over the same period. So in this case, losses were not realized on crypto-related assets, but crypto deposit withdrawals caused banks to sell other assets at a loss.
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