Silvergate Bank to begin voluntary liquidation (opens in new tab)

https://www.antipope.org/charlie/blog-static/2023/02/place-y...

(Which I don't buy)

I thought banks were able to sell those long maturity assets for cash to another bank or investor to avoid exactly that kind of situation?

And my understanding is banks must meet their regulatory requirements overnight each night, so there is a market for overnight loans/swaps/etc to make sure thats the case.

> It’s just last week that US regulators warned banks about this [...]. It’s almost like they knew this was coming. The regulators did not quite say “therefore, don’t bank crypto exchanges”; in fact, they said the opposite [...]. But you got the idea.

If you stay silent most of the time, but say “we might be on a collision course with an iceberg” an hour before said iceberg comes along, your advice is very valuable (it might not be legibly valuable if it’s the first time you spoke up, but that’s not the concern here). If you say a lot of things all the time and then warn about the iceberg thing a minute before it happens, well, your advice is still better than nothing, but it’s not exactly an example of amazing foresight. And surely appending “captains have broad discretion over the course of their ship, as permitted by law or regulation” to the warning should discount its value further, at least a bit.

> A run on the bank happens in, like, It’s a Wonderful Life, but in the real world of big US banks, that particular dynamic [...] would be strange. [...] The story today is that Silvergate’s customers are withdrawing their money because they are worried about Silvergate [...]. But that's not why they were withdrawing their money in late 2022, when the trouble started. Then, they were withdrawing their money because crypto had collapsed [...]. The customers — crypto exchanges — were the problem, not Silvergate. [...]. I suppose this counts as contagion from the crypto crash to the real financial system [...] It is a narrow sort of contagion: That bank is pretty much the Bank of Crypto [...]. But it is certainly the sort of contagion that regulators will want to discourage [...].

Are the crypto exchanges the problem, though? This doesn’t read like a “cryptocurrency bad” story, it reads like a “being the Bank of Thing is bad” story. Cryptocurrency exchanges are a particularly bad value of Thing here, sure, but generally speaking, if you are the Bank of Thing and an overwhelming majority of your depositors are in the Thing business, then aren’t you essentially betting that Thing will not experience short-term volatility? Most of the time, the most relevant Thing is retail deposits, and as the article mentions, there’s a whole bunch of stuff instituted to smooth that out, but doesn’t this still apply for other, deposit-insurance-disadvantaged Things just as well?

In that view, it seems like, first, there should be indeed some opinions that, if you a running a bank, being an undiversified Bank of Thing on the depositor side is not a good idea, but also, second, that if you are a bank regulator and you regulate a Thing to a point where most but not all banks will refuse Thing businesses, you are very much accepting that those few remaining banks will be vulnerable.

https://www.cnbc.com/2023/03/08/silvergate-shutting-down-ope...