Fed report notes crypto is not responsible behind US banking crisis

The Federal Reserve’s latest report confirmed that mismanagement was the main reason behind the downfall of several US-based, popular banks. 

In Feb 2023, many US-based banks reported bad financial positions. So far 4 banks collapsed badly but 3 of them were rescued by the financial watchdogs, to maintain the trust level among the citizens. The latest failed US bank is First Republic Bank. Many financial experts blamed the crypto sector as a big responsible factor behind the US banking crisis.

On 28 April 2023, Michael S. Barr, the Vice Chair of Supervision at the Federal Reserve, published a report on the recent US banking crisis and noted that the situation occurred because of mismanagement by senior leadership and a lack of oversight by the board of directors.

Barr’s report noted that the Federal Reserve’s banking regulation framework is not powerful enough and this situation is a lesson for us to fix the situation in the initial step via more strict rules. 

“We must strengthen the Federal Reserve’s supervision and regulation based on what we have learned. This report represents the first step in that process,” the report states.

In the 118-page report, Barr mentioned the Crypto word three times and also briefly mentioned crypto as a risk for banks but confirmed that the latest situation occurred not because of the crypto sector.

The report noted that the Trump Administration dramatically deregulated the banking sector during his four years in office. Including rolling back parts of the Dodd-Frank Act, easing the Volcker Rule, and weakening the Consumer Financial Protection Bureau.

Congressional Research Service

Recently the Congressional Research Service published its report on the failure of crypto-friendly banks like Silicon Valley Bank (SVB), Signature Bank, and Silvergate Bank. 

Report claimed that these banks failed because of their exposure to the crypto companies.

The report noted that 90% of the bank deposits & financial services by these banks were related to crypto firms and also the financial position of these banks was affected significantly because of the failure of crypto firms. 

Read also: FDIC addresses weaknesses in Cross River Bank’s lending practices