Friday, March 10, 2023

Bank Runs Sink Silicon Valley Bank, Silvergate

Time will reveal the significance of two bank failures, Silicon Valley Bank and Silvergate.  Pittsburg Post Gazetter reported:

VC firms ranging from Peter Thiel's Founders Fund to Union Square Ventures had told portfolio companies to pull their money from Silicon Valley Bank.

At Silvergate, which caters to cryptocurrency clients, customers yanked their money in the panic that followed the 2022 collapse of cryptocurrency exchange FTX.  

Bank runs mean massive withdrawals requiring forced asset sales.  Forced asset sales in a down valuation market means losses.  Peter Thiel knows this, as does every venture capitalist and private equity underwriter (PEU).  

How did this supposedly "patient money" in an FDIC insured bank became an instant "got to have."  Disrupters did the disrupting. 

The article raised questions like: a financial institution pushing so deeply into crypto didn’t prompt action on the part of its regulators.

Where were the regulators on Silvergate?” asked Jerry Comizio, an adjunct law professor at American University and a former U.S. Treasury Department official. “In a real sense, they missed Silvergate.”

Not only were the regulators absent but the Federal Home Loan Bank propped up Silvergate with billions.

Did it help that a former FDIC Chair is on the board of crypto infrastructure firm Paxos?  Did it help that Carlyle Group co-founder David Rubenstein personally invested in Paxos and kept D.C. regulators at bay?  Rubenstein considered FTX's Sam Bankman-Fried his peer in August 2022 and pushed crypto as "titillating."

Crypto infrastructure company Paxos said in a statement that the company “has virtually no exposure to Silvergate.”

That's because Paxos has its own bank.  Former FDIC Chair Sheila Bair minimized Silvergate's fall:

“Silvergate’s troubles are as much if not more about traditional banking risks — lack of diversification, maturity mismatches — as it is about its exposure to crypto,” said Sheila Bair, who headed the FDIC during the global financial crisis.

Did she do so to stem a Paxos bank run?  Turn over a rock and one may find a PEU or conflicted former member of government doing what's best for them.  They don't even pretend to care about you.

Update 3-15-23:  Silicon Valley Bridge Bank put quite the spin on its emergence from insolvency:

Silicon Valley Bank is now marketing themselves as the single safest "place to keep or transfer your deposits (fully insured with no limits or caps)."

Update 10-21-23:  Marc Cohodes wrote "Peter Thiel is and always has been Dirty."