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Digital Asset Experts School Senate Banking Committee Members on Silvergate Debacle

Crowdfund Insider | | Mar 9, 2023

Chair Brown Senate banking committee - Digital Asset Experts School Senate Banking Committee Members on Silvergate Debacle

Yet while crypto contagion and the failure of firms like FTX may be a catalyst to the demise of Silvergate Bank, ultimately, it was not the cause, according to multiple digital asset experts. This is contrary to statements made by several prominent US Senators.

  • Senator Brown, Chair of the Senate Banking Committee, said that FTX’s collapse continues to “ripple outward” when a bank is “overreliant” on crypto.
    • Response by  Caitlin Long, a digital asset entrepreneur, crypto proponent, and former investment bank executive.
    • Long provided a brief education to the Senator, stating:

“… you’re wrong [Senator Sherrod Brown] that #crypto triggered Silvergate’s issue. What did it was $13.3bn in demand deposits that depositors cld withdraw in minutes, but only $1.4bn of cash. Had $SI held $13.3bn of cash, the bank run wouldn’t have impaired its capital. Not a crypto prob…”

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Long added:

“When a bank w/ highly volatile deposits makes a levered investment in 10-year bonds into a Fed tightening cycle, what happens when a bank run hits is predictable—liquidate those bonds at a loss, impairing the bank’s capital. It’s an indictment against fractional-reserve banking.”

She said this is exactly what her digital bank Custodia proposed to fix – which was blocked by federal regulators.

  • Ram Ahluwalia, a well-known Fintech entrepreneur and crypto expert, slammed Senator Elizabeth Warren’s statement on Silvergate’s failure. Senator Warren is a member of the Senate Banking Committee and has long opposed digital asset innovation.

Senator Warren stated:

“As the bank of choice for crypto, Silvergate Bank’s failure is disappointing, but predictable. I warned of Silvergate’s risky, if not illegal, activity—and identified severe due diligence failures. Now, customers must be made whole & regulators should step up against crypto risk.”

Ahluwalia said, “the Senator’s allegations should not be used to justify the destruction of a Federal Reserve member bank in a 120-character Twitter thread.”

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He added:

“Silvergate, the first crypto bank, faced a bank run that led to its downfall. Despite facing allegations around AML, it was not these issues that ultimately caused the demise of $SI. The responsibility for bank supervision lies with the Executive Branch, but this process was cut short. A Senator’s letter, amplified by social media, undermined public trust in Silvergate, ultimately leading to a crisis of confidence. It is important to uphold the principle of due process. Silvergate was denied due process.”

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