The collapses of Silicon Valley Bank and Signature Bank have prompted people -- in droves -- to withdraw their savings from small and regional banks and deposit the funds into too-big-to-fail financial institutions and cryptocurrency investments. Bank of America, JPMorgan, Citi, Wells Fargo and crypto were the beneficiaries of this banking calamity.
Before the United States Department of Treasury, Federal Reserve Bank and Federal Deposit Insurance Corporation enacted measures to backstop the banks, there was a palpable fear of a banking crisis with a substantial number of banks closing their doors. The possibility of a large-scale financial contagion buttressed the arguments of bitcoin and crypto enthusiasts asserting that decentralized systems offer safety, as they are not tied to the entire banking and financial system.
As the banking sector was under pressure and the stock market plunged, bitcoin prices and other leading tokens rose during the tumultuous time. CNBC reported bitcoin and ether skyrocketed higher by about 17% and 10%, respectively, on Monday and Tuesday. Bitcoin rose to its highest level since last June, jumping up to around $26,000. Ether's value increased as it traded higher to about $1,780. This level was last hit on September 12, when the price rallied leading up to the Ethereum Merge. The strength of the digital assets bolstered the claims by crypto investors that bitcoin serves as an important alternative asset to the dollar.
The Securities and Exchange Commission announced that it is growing its headcount to investigate, audit and examine cryptocurrency platforms and exchanges. In addition to the SEC, other regulatory and law enforcement entities will conduct their own reviews. Companies in this sector must proactively hire compliance, legal, risk, audit and anti-money laundering professionals to ensure they are not violating any rules and laws.
To ensure the safety of the banks and their customers, regulators will require more compliance officers, attorneys, risk managers, auditors and related personnel. Government regulators at the SEC and other agencies will examine, audit and investigate banks of all sizes to prevent further blow-ups. They'll gain notice for spotting bad actors and be recruited away from the lower-paying governmental agencies to lucrative law firm partnerships and management roles at banks.
Large banks will be hiring to accommodate the influx of new business. As larger rivals swallow smaller financial institutions, their staff will be laid off as the bigger banks already have the personnel.
If crypto keeps up its momentum, more people will be interested in pivoting their careers toward this space. They'll make the analysis that going to work for a small bank is too risky, and being at a massive bank, they will get lost in the crowd. Joining a crypto firm might be an attractive alternative for people looking to fast-track their careers.
Unlike the U.S. banking system, bitcoin conducts transitions on a decentralized computer network or distributed ledger via blockchain technology. The deFi system manages and tracks digital assets and ensures the ownership of bitcoin and other tokens.
Bitcoin can operate mostly anonymously without government meddling. The absence of a central bank pulling the levers and making the decisions over the money supply allows the exchanges to remain outside the mainstream financial markets. However, nothing is perfect, and authorities are honing in on the cryptocurrency sector. The abrupt shutdown of crypto-friendly Signature Bank fanned fears that the U.S. government is trying to degrade this sector.
The bank collapses made the digital asset industry look more attractive, but there are reasons to be wary. Politico points out concerns that crypto will be muscled out of traditional banking, and U.S. regulators, including the Federal Reserve, have cautioned lenders about potential risks associated with digital assets. The concerns of crypto investors were reaffirmed by the closures of Silvergate Bank, Silicon Valley Bank and Signature Bank -- all involved with digital assets.
Amid the bank failures, Treasury Secretary Janet Yellen tried to calm the nation's nerves by saying the "banking system is sound." Yellen, who previously served as the chair of the Federal Reserve from 2014 to 2018, told the Senate Finance Committee, "I can reassure the members of the committee that our banking system is sound and that Americans can feel confident that their deposits will be there when they need them. This week's actions demonstrate our resolute commitment to ensure that our financial system remains strong and that depositors' savings remain safe."
Despite her attempts at reassuring Congress and Americans worried about the safety of their bank accounts, Yellen was unable to confirm that smaller banks would receive the same type of "bailout" that the venture capitalists and startup companies received. The inability to offer comfort to smaller and regional banks creates concerns. If other banks are at risk of imploding due to bank runs, depositors will withdraw their money en masse, creating a contagion effect. Large-scale withdrawals could cripple banks that are not well-capitalized. Ultimately, it would lead to a nationwide banking crisis.
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