The dust is settling after the collapse of three major banks in the U.S. However, there is an ongoing search for a scapegoat to pin the financial failures on, with regulators, and now a U.S. senator, eyeing crypto.
Speaking at a March 16 hearing of the Senate Finance Committee, Democratic representative for Colorado Michael Bennet suggested banks involving themselves in the crypto industry were not making “prudentially sound” decisions.
In making his point, the senator explained how banks and crypto companies operate more freely than banks and marijuana dispensaries. Marijuana companies offer legal services in many U.S. states, including Bennet’s, but remain frozen out of the financial system.
According to Bennet, crypto is not “even as stable as the marijuana industry,” expressing it may have been a factor in the collapse of Signature Bank.
However, the collapse of Signature Bank had nothing to do with instability from crypto but rather an overzealous move by the New York State Department of Financial Services (NYDFS), according to Barney Frank, a former House of Representatives member.
Should Senators Be Taking the Blame?
Frank suggested that the NYDFS closed Signature as part of a show of force. He added the only indication of problems at Signature was a bank run of more than $10 billion on March 10, labeled “purely contagion” from the Silicon Valley Bank fallout.
Additionally, the bank run that befell Silicon Valley Bank and catalyzed wide-scale banking jitters was only possible because Senator Bennet and others passed a banking deregulation bill in 2018.
Senate Bill 2155 — which Bennet voted for— curtailed parts of the Dodd-Frank Act that called on banks to lend responsibly, hold adequate cash on hand, and conduct stress tests to ensure the liquidity required to prevent a bank run.
While placing blame on crypto for the collapse of banks and playing a part in allowing such failures to happen through his moves in congress, Sen. Bennet was recently asked if he regretted his vote on Senate Bill 2155. He said: “No. I voted for a bill that was a bipartisan compromise.”
Blame has not been firmly grounded anywhere yet, but anti-crypto Senator Elizabeth Warren has blamed the former presidential administration, which rolled back critical parts of the Dodd-Frank Act in 2018 in Senate Bill 2155.
"Had Congress and the Federal Reserve not rolled back the stricter oversight, SVB and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks," said Warren.
On the Flipside
- Senate Bill 2155 was brought forward by the Trump administration and pushed forward by the Republicans. However, Bennet and several other Democrats helped get the bill into law.
Why You Should Care
There has been no pinpointing of what actually caused the collapse of the three major U.S. banks, but there is a growing discord that crypto is at the heart of failing financial institutions. If crypto is scapegoated, the crypto industry could find the U.S. very hostile ground.