'[E]very bank in America, whether they’re funding server farms or the literal corn and peas variety, is facing many of the same structural pressures,' CoinDesk Chief Insights Columnist DavidZMorris writes. Opinion for The Node newsletter
Both banks would have bought more bonds as collateral to backstop that deposit growth – at a time when rates on those bonds were still. Rates on new bonds are now closer to 4% thanks to Fed rate hikes, driving down demand for the older bonds. That’s why, at the exact moment customers in bubbly or reversing sectors started drawing down their deposits, Silvergate and SVB had to cash in liquid assets at a loss.
For example, some will be tempted to blame the Fed for hiking rates, but that’s a genuinely necessary measure to rein in inflation. That inflation, in turn, was the result of both real cost rises linked to COVID-19, and a money supply significantly expanded by COVID relief and bailout policies. The net cost and benefit of those policies will take years to fully reckon with, but an anti-Fed critique at this moment is at best reductive.
On the other hand, it will be tempting for many in the mainstream to blame the cryptocurrency sector itself for the incipient banking crisis. The most obvious evidence for this claim is that Silvergate, “the crypto bank,” fell first. In the coming weeks you may hear it referred to as “the first domino to fall” or some such pablum, but that’s simply not the reality on the ground.
Rather, every bank in America, whether they’re funding server farms or the literal corn and peas variety, is facing many of the same structural pressures. Their root cause is a massive real disruption in the economy – a virus that has killed . If there’s one lesson to absorb right now, it’s that fiddling with financial levers can’t entirely smooth over that kind of real-world chaos.
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