Senator Elizabeth Warren (Massachusetts) and Rep. Alexandria Ocasio-Cortez (AOC) (New York) are investigating Silicon Valley Bank’s (SVB) possible “white glove” treatment of a few depositors. Two members of Congress have questioned executives from the stablecoin issuer Circle and the insolvent cryptocurrency lender BlockFi. They are looking into so-called “mutual backscratching arrangements” claimed to have been made with the now-defunct Silicon Valley Bank.
The two companies were among 14 to receive a letter from Warren and Ocasio-Cortez inquiring about their decision to bank with SVB. The letter, dated April 9, asked top executives of companies that had banking relationships with SVB a series of inquiries. These inquiries included how much money they had put and kept in the bank.
Circle and BlockFi CEOs Jeremy Allaire and Zac Prince were questioned about the length of their financial liaisons with SVB, the amounts placed with the bank, and what “agreements” were made between their companies. The lawmakers also indicated that further information concerning SVB’s alleged “coddling” and “white glove” treatment of its top depositors is needed to determine whether these businesses played a part in SVB’s demise.
The failure of SVB has highlighted the hazards of financial system concentration. After a $42 billion single-day run, federal officials were forced to pay $20 billion to staunch the flow of withdrawals. Circle alone had $3.3 billion in uninsured accounts at SVB, while BlockFi admitted to having cash with the bank that went bankrupt. Stablecoins are intended to serve as a solid link between traditional finance and the turbulent crypto marketplaces. Because of such massive collapses, there has been some worry regarding the sort of cash reserves that stablecoins keep. However, their reliance on banks may render them vulnerable to unexpected economic shocks.
“Congress, bank regulators, and the public are owed an explanation for the bank’s hyper-reliance on tech industry firms and investors,” Warren and AOC wrote.
Warren and AOC questioned Circle’s decision to keep $3.3 billion in assets at SVB in the letter. The letter also asked Allaire if SVB provided Circle incentives such as lines of credit or bonuses to Circle board members. Furthermore, the couple was curious if SVB provided “perks” such as low-interest rate mortgages or SVB-sponsored “ski trips, conferences, and fancy dinners.”
The ripple effect of SVB’s demise was felt throughout the crypto community, with several firms exposing exposure to the bank. Ripple, Pantera, Avalanche, and Yuga Labs, in addition to Circle and BlockFi, have reported exposure to the bank. However, on March 13, the FDIC pledged to safeguard all SVB depositors, which alleviated most of the fears.