#FTX – Federal Financial Analytics

10 01, 2023

American Banker, Tuesday, January 10, 2023

Arezou Rafikian2023-01-11T11:01:42-05:00January 10th, 2023|Press Clips|

Silvergate Bank loaded up on $4.3 billion in FHLB advances

By Kate Berry

When depositors began pulling money out of Silvergate Capital Corp. following the collapse of cryptocurrency exchange FTX, the California bank shored up its liquidity by tapping a quasi-government agency not typically known as a lender of last resort. Silvergate received $4.3 billion from the Federal Home Loan Bank of San Francisco late last year, company filings show….”What the $4.3 billion to Silvergate went to in terms of mission is a very intriguing question,” said Karen Petrou, managing partner at Federal Financial Analytics. “The housing mission of the Home Loan banks is apparently long gone, since this has nothing to do with housing. It has to do with supplementing wholesale funding sources for banks that can’t happen any other way or at greater cost.”

https://www.americanbanker.com/news/silvergate-bank-loaded-up-on-4-3-billion-in-fhlb-advances

…

12 12, 2022

Karen Petrou: Where New Crypto Enforcement, Regulatory Action Will Land

Arezou Rafikian2022-12-12T15:50:07-05:00December 12th, 2022|The Vault|

As we’ve learned over the years, a memo written is a memo shared. So it was with my last note on what were then little-noticed links between the tumultuous cryptosphere and what regulators assured us was a banking sector aloof from these violent downdrafts. Sens. Warren and Smith then picked up the examples of several bank/crypto hot spots. The result of new facts combined with heightened political risk will surely lead the bank regulators to follow the tried-and-true strategy of slapping a lot of enforcement actions around before agency heads are hauled up to the Hill. Other than stablecoin legislation, new crypto law is uncertain, but after all the enforcement actions will also surely come new banking crypto regulation.

First, though, to incoming enforcement actions as these lay the groundwork for next-gen regulation. Any bank with big crypto exposures no matter how otherwise pristine is already under its examiner’s gun in terms of immediate demands for an inventory of all crypto actions anytime for anyone. The senators include this in their asks, looking for names as well as activities and customers. But the banking agencies were surely already hot on this trail.

Any bank that failed to mind its prior-notice manners will surely get a public drubbing so that regulators can point to a host of cases that uncover all risks anywhere they lurk. And banks now casting covetous eyes on cheap crypto assets will get a talking to from Washington if their own internal risk managers haven’t already …

5 12, 2022

Karen Petrou: Bank Canaries in the Crypto Mineshaft

Arezou Rafikian2022-12-05T16:34:33-05:00December 5th, 2022|The Vault|

Just because crypto hasn’t triggered a systemic collapse doesn’t mean that it won’t be the perpetrator of quiet banking crashes. We would do well to remember that the 2008 calamity came shortly after the collapse of small subprime-mortgage finance companies. These would have been proverbial dead canaries had anyone looked down the mineshaft. And, even as the U.S. subprime crashes formed into a single, torrential crisis, bank regulators confidently foretold no systemic impact because they comfortably believed that no bank had undue exposure to high-risk mortgages. So bank regulators still say now when it comes to crypto and let’s hope the outcome is different this time. However, bits and pieces of bank wreckage are already to be found in FTX’s rubble and may well surface as the crypto tide continues to ebb. No bank shipwrecks have emerged, but some of the wreckage has the look of a sizeable hull.

The most tantalizing bit of banking wreckage is a super-tiny Washington State bank which FTX appears to have surreptitiously acquired. As the New York Times reported, one of FTX’s affiliates last March invested more than double all the capital previously held in Farmington State Bank, doing so in a carefully-structured way to avoid triggering legal control thresholds. The bank is the nation’s 26^th smallest and, after this generous investment, it deposits went up about 600 percent from its initial $10 million level via four new accounts. Sill more intriguingly, Farmington’s crypto ties via shadow owners appear to go back to …

21 11, 2022

Karen Petrou: What Will Be Done, Not Just Said, To Fix FTX

Arezou Rafikian2022-11-22T13:18:11-05:00November 21st, 2022|The Vault|

The only question left unanswered about FTX is whether it was a purposeful scam as more than a few clients conclude or a case of implacable forces ending the era of easy money that just got the better of another wunderkind whose awesome skills turned out to be largely confined to costumery conveying inspired innovation to all too many vulnerable investors and gullible politicians. No matter which it is or even – as I think – if it’s a bit of both, FTX is a debacle that will change U.S. financial policy for the better unless FTX drives still more crypto chaos that then spills over to core financial infrastructure and intermediation. I’ve gotten a lot of questions about crypto policy after my brief discussion in last week’s talk on the midterm’s policy impact. Here, more on both the legislative outlook and what regulators may finally bring themselves to do even if Congress can’t get itself together any better next year than in so many before it.

First more on why stablecoins are the cryptoasset most likely to come under a new federal gun. This isn’t because they deserve it more than any other cryptoasset – although they might – but because policy thinking about what to do with stablecoins is most advanced and, thus, bipartisan negotiations in the House are closest to the finish line.

That said, even stablecoin standards aren’t going to be easy. The clearest articulation of how new law might work is S. 4356, the Lummis-Gillibrand …

8 12, 2021

FedFin: HFSC Begins Political Taxonomy of Crypto-Asset Policy

Arezou Rafikian2023-05-23T13:06:52-04:00December 8th, 2021|The Vault|

As anticipated, today’s HFSC hearing was a marathon session at which industry witnesses defended their business model, Republicans liked it fine, and Democrats worried about a wide array of policy challenges. While both sides of the aisle agreed that cryptoassets might well enhance financial inclusion, partisan battle lines formed over issues such as the extent to which stablecoins are fully reserved, covered by the securities laws, and if a single regulator for this sector is either desirable or feasible. Industry witnesses strongly rejected the PWG’s stablecoin conclusions (see Client Report CRYPTO21), suggesting for example that stablecoins are safer than bank deposits because they are fully – not fractionally – reserved.

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…