Earlier this month, the foundations of the US financial system were shattered. Three large crypto-minded banks closed their doors after severe liquidity problems. The Federal Deposit Insurance Corporation (FDIC) an investigation has been launched to the role of executives at Silicon Valley Bank (SVB) and Signature Bank.
22.5 billion in damage
According to the FDIC, executives are responsible for mismanagement that resulted in the closure of the banks. The president of the FDIC says bank executives will be scrutinized “for the losses they have inflicted on banks, and for misconduct in managing the banks.”
The FDIC is an insurance agency of the US government that provides insurance to customers of US banks. The collapse of SVB and Signature Bank resulted in $22.5 billion in damage to the FDIC. The problems for the two banks started after the collapse of the crypto exchange FTX in November last year. The banks could not recover from the liquidity shock.
Alongside SVB and Signature Bank, Silvergate was the first to close its doors at the beginning of the month. The other two followed soon after. However, unlike the other two banks, Silvergate managed to liquidate itself and therefore does not fall under the guardianship of the FDIC.
Situation was more serious than expected
As a regulator on behalf of the US government, the Federal Reserve is indirectly responsible for the collapse of the banks. Michael Barr, Vice President of the Fed, indicates in a testimonial to have been aware of the mismanagement at Silicon Valley Bank.
In 2021, problems were already found in the liquidity management policy. A year later, the alarm was sounded again because of problems with the board, internal controls and incorrect risk management. Despite that, the fall earlier this month came as a shock. The Fed says it was not aware of the seriousness of the situation.
Earlier this month, we wrote that the SEC and DOJ were investigating Silicon Valley Bank executives. The CEO and CFO of the bank sold large amounts of their shares in the company in the weeks before the closure.