- Cathie Wood says crypto had “nothing to do” with SVB and Signature Bank collapses.
- Rather, it’s Fed policy that “caught many regional banks offside.”
- According to her, the banks suffered as a result of assets/liability mismatch.
Cathie Wood, the founder and CEO of ARK Invest, says crypto isn’t responsible for the failed Silicon Valley Bank (SVB) and Signature Bank, which was shut down by US authorities last Sunday.
Rather, she contends that the bankruptcies of Silicon Valley Bank and Signature Bank were a result of the Federal Reserve’s policy. She believes that the lack of venture capital funding and higher yields on money market funds led to a reduction in deposits in the US banking system, contributing to the banks’ financial troubles.
Wood: the Fed caught many regional banks offside
According to the highly respected asset manager and investor, the banks’ struggles are not due to crypto but down to regulatory and systemic issues, with many banks caught unawares after the surplus money flows of the COVID-19 era.
“Crypto had nothing to do with the banks’ investment decisions, nor the Fed’s decision to jack up interest rates 19-fold in less than a year. Incorrectly assuming that it was fighting a seventies-style inflation, the Fed caught many regional banks off sides with unrealized losses,” she argued.
In a Twitter thread posted on 16 March, the ARK Invest executive noted that despite the yield curve inverting in July 2022, and with credit default swaps “flashing red“, the Fed maintained its upward rates trajectory. In her view, the Fed failed to take note of unwinding inflation indicators, including commodity prices.
“I am baffled that banks and regulators could not convince the Fed that disaster loomed. Did they not understand that the asset/liability mismatch – normal in most circumstances for banks – was untenable as deposits left the banking system for the first time since the 1930s?,” the ARK Invest CIO added.
The asset/liability duration mismatch – securities earning only 1-2% vs. deposits paying 3-5% – became untenable as deposits started leaving the system. Like SVB, some banks were forced to sell HTM securities, recognizing losses that depleted their equity accounts.
– Cathie Wood (@CathieDWood) March 16, 2023
Commenting on what happened last week, with the government shutting Signature Bank after SVB’s collapse, Wood says that all this is just about regulators trying to scapegoat crypto. In her opinion, cryptocurrency is “the solution to central points of failure, opacity, and the regulatory mistakes.”
Wood’s comments came as House Republican Whip Rep. Tom Emmer, said he had written to FDIC Chairman Martin Gruenberg about reports the agency was “weaponizing” the instability witnessed in the banking sector to purge cryptocurrency activity from the United States.
If you are correct, Congressman, then the FDIC and others will prevent the US from participating in the most important phase of the internet revolution. Like you, I believe regulators are using crypto as a scapegoat for their own lapses in oversight of traditional banking. https://t.co/UDh3bwB2pB
– Cathie Wood (@CathieDWood) March 16, 2023
Wood believes this scapegoating could see the US miss out on what is likely the most important innovation so far.
The ARK Invest CEO also commented on the overall market performance of cryptocurrencies amid the banking sector fallout. According to her, crypto acted more like safe haven assets as bank stocks tanked.
As highlighted here earlier this week, indeed Bitcoin price broke above $26,000 to lead the broader crypto market higher as markets reacted to CPI data. Erlier, stock markets had floundered under the weight of uncertainty fueled by crisis in the US banking industry.