On May 16, the Senate held a hearing to examine the recent bank failures that rocked the United States financial system. One of the witnesses is Scott Shay, the former chairman, and co-founder of Signature Bank. Senator Cynthia Lummis, a supporter of the crypto Industry, challenged Shay’s narrative that the digital asset sector contributed to the bank’s collapse in March 2023.
Signature Bank’s collapse is the 3rd largest bank failure in U.S. history. Government Regulators had to step in and take control of the bank to protect investors and the stability of the financial system. Barney Frank, a Signature Bank board member, claimed that regulators shut down the company to send a message to banks servicing crypto companies.
If Crypto is Not at Fault, then What Caused It?
During the Senate hearing, Senator Lummis asked Signature’s former chairman if his bank held and traded digital assets. Shay said that they did not have any crypto or digital assets. The discussion further clarified that the bank had depositors from the digital assets space. Only 18% of deposits came from the digital asset industry and they were all in cash,
The New York State Department of Financial Services (NYDFS) stated that the bank had no digital assets during the time of the collapse. The NYFDS also said that the outflow from the digital asset industry was relatively proportional. This means that crypto companies were not the drivers of the bank’s failure.
In separate testimony to the U.S. House Subcommittee on Digital Assets, Financial Technology, and Inclusion, NYDFS Superintendent Adrienne Harris stated that digital assets were not the cause of the bank’s collapse.
Senator Lummis quoted a report from the Federal Deposit Insurance Corporation (FDIC) that the cause of the bank’s failure was poor management. Signature Banks’ Board pursued rapid growth without developing and maintaining adequate management practices and controls. This eerily sounds familiar because this is the same reason for the FTX implosion.
Blaming Everybody Except the Actual Culprit
The crypto industry has always been misunderstood. It couldn’t be helped since emerging technologies always need time to be adopted. This also happened in the early days of the Internet. The problem is that it is conveniently being made the scapegoat for failures that it did not cause. Last year was bad for the industry; the bear market was further exacerbated by multiple crypto companies failing in succession. But instead of going after bad actors who started the collapse, regulators opted to attack the whole crypto space, in the name of consumer protection.
Senator Lummis gave a clear and simple explanation of why Signature collapsed. She simply quoted the FDIC findings, wherein the root cause was mismanagement. Crypto players simply tried to withdraw their cash alongside other depositors. A bank with proper liquidity shouldn’t have any issues with this.
Watch Senator Lummis question Scott Shay:
Recommended reading:
- Crypto Finds Strong Support from Members of Congress
- Apparent Blacklisting of Crypto from Banks Being Investigated by Congress
- Crypto Just Found Powerful Allies in Congress, Gensler Under Fire
Source: Senator Cynthia Lummis
Featured Image from Unsplash
