Key Points
- Venture Capitalist Nic Carter alleges that the Biden administration informally mandated banks to limit crypto deposits to 15%, leading to the downfall of several banks.
- Carter suggests that this move could have sparked the 2023 regional banking crisis.
Venture Capitalist Nic Carter has written a new piece, which delves into the claim that an informal directive from the Biden administration forced banks to restrict their cryptocurrency deposits to 15%. This, according to Carter, resulted in the collapse of Silvergate, Signature, and Silicon Valley Bank.
Operation Choke Point 2.0
Carter’s latest article, published on September 25, is a follow-up to his previous two reports on Operation Choke Point 2.0. This time, he focuses on Silvergate, a now-defunct Californian bank that used to offer cryptocurrency services.
Carter’s research, which includes interviews with anonymous insiders and bankruptcy filings, suggests that Silvergate might have survived if it hadn’t been for regulatory pressure. He claims this pressure included an informal directive to limit its cryptocurrency deposits to 15%.
Regulatory Pressure and Consequences
Carter states that Silvergate was under intense scrutiny from financial regulators, including the Federal Deposit Insurance Corporation and US Senators like Elizabeth Warren. This was due to the bank’s previous association with a former banking client, FTX. Despite allegations of criminal activity linked to Silvergate’s association with FTX, no evidence was found, and the bank was cleared of criminal charges.
Carter suggests that political pressure led to the Federal Home Loan Banks refusing to renew Silvergate’s monthly loan agreement, exacerbating the bank’s losses. He quotes an unnamed source from Silvergate, who claimed that the bank was forced to adhere to the 15% rule.
Carter finds it challenging to verify the existence of the 15% limit as it was deemed “confidential supervisory information”, and therefore not publicly accessible. However, he believes that Silvergate’s collapse may have triggered the 2023 regional banking crisis, which also affected other crypto-affiliated banks like Signature, Silicon Valley Bank, and First Republic.
Carter finds it unusual that Silvergate opted for voluntary liquidation instead of FDIC receivership. He suggests that this decision further indicates that regulatory pressure, rather than a bank run, was the primary cause of Silvergate’s downfall.
Even after the 2023 crisis, Carter noticed a similar pattern with the two other firms known for banking in crypto, Customers and Cross River. He cites instances where the FDIC and the Federal Reserve Bank of Philadelphia issued enforcement actions against these banks, citing deficiencies in their risk management practices and compliance with anti-money laundering laws.
Carter concludes by suggesting that the alleged attempt by Washington to dismantle crypto banks in March 2023 may have been the catalyst for a significant regional banking crisis. However, he notes that there has been no criticism directed at President Biden, Senator Warren, or the Federal Reserve for potentially instigating a banking crisis in their efforts to curb the crypto sector.