The Senate Banking Committee will meet Thursday to strengthen crypto legislation that further fulfills many of President Donald Trump’s promises to his crypto billionaire friends. In its race to complete the crypto industry’s wish list before the midterms, Congress should remember what happened the last time crypto impacted traditional banking. We’ve seen this movie before – and taxpayers paid for the tickets.
Last September, as ranking member of the Senate Permanent Subcommittee on Investigations, I released a 292-page report documenting how three major U.S. banks were given dubious audits that showed they were sound—just before their catastrophic failures cost bank customers millions.
Our research gave us a unique insight into how crypto can quickly evolve from innovation to contagion. Silicon Valley Bank, Signature Bank and First Republic Bank reaped profits as venture capital and crypto boomed, but they all learned that tech money comes fast but goes away even faster – threatening the stability of the banking industry and leaving taxpayers and investors with losses. These bank failures provide a chilling warning to anyone who supports the crypto lobby’s efforts to further entrench the unsavory world of crypto into the US economy.
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Silicon Valley Bank collapsed following the bankruptcy of trading firm FTX, the Bitcoin market downturn and the closure of crypto-focused Silvergate Bank. In early 2023, as their bets fell apart, crypto industry insiders pushed for bailouts — sparking panic that accelerated bank runs. The resulting unrest threatened major tech companies and millions of savers, ultimately requiring $340 billion in federal interventions to quell fears of contagion. Even then, more than $54 billion in stocks and bonds became worthless when the banks collapsed, including $700 million lost by a pension fund in one day. Unless Congress takes action to put up some guardrails against the recently passed GENIUS Act, it will only be a matter of time before the industry is once again clamoring for a bailout.
The historic rate of deposit flight at these banks has shown how the modern financial world is becoming faster and more reckless, especially with the introduction of crypto companies into the banking system. Technology has made banking faster, but it has also made failure faster. More crypto in the banking system increases the systemic risk of financial instability. Signature Bank is a clear example: it went bankrupt after their substantial crypto-related deposits left the bank in the months following the collapse of FTX. The complexity and opacity of crypto markets also undermine traditional supervision. Signature Bank’s accountants were unaware of the risks and repeatedly assured the public that everything was fine, year after year. But opacity isn’t a bug of crypto – it’s the business model.
Now the crypto industry has spent millions trying to lobby Congress and the Trump administration to forget the past and allow them to take over the banking industry and write their own investment rules. Crypto is encouraging US consumers to give up traditional bank accounts in favor of “digital dollars” called stablecoins. The industry is even trying to replace savings accounts by offering “yields” on tokens – the crypto equivalent of interest. While this new form of digital currency may sound attractive, stablecoins lack the basic safeguards that protected depositors at Silicon Valley Bank when it collapsed in 2023.
The collapse of Silicon Valley Bank and the subsequent unrest should have been a lesson: keep crypto far away from our financial system. The collapse of Silicon Valley Bank was not the fault of a few bad managers or reckless reporting from a single accountant. The cozy audits these banks have received for years expose a fundamental principle of finance: Recklessness thrives when profits are private and losses are public.
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Even now, the crypto markets are in turmoil. Since the GENIUS Act passed last summer, half a dozen major stablecoins have been “decoupled,” disconnecting them from the currency they claim to have a 1:1 relationship with, wiping out hundreds of millions of dollars for everyone who owns the tokens. But this is just a small start. The current stablecoin market is approximately $300 billion. Coinbase’s CEO recently predicted that it could quadruple its size by 2030. Considering what crypto volatility did to regional banks in 2023 after the collapse of FTX, what threats could this pose if the savings of millions of Americans and more banks depend on crypto?
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My research revealed that Signature Bank’s accountants were joking with each other when the bank collapsed. They thought its management was foolish for relying on crypto to grow their numbers and “look cool… and wonder why they crumble when the floor falls away.” That casual cynicism reflects the deeper failure exposed by the bank’s collapse in 2023: when crypto-driven risk is profitable, those charged with overseeing it will look away.
As the Senate Banking Committee prepares to pass a crypto market structure bill, Congress should remember that the collapse of Silicon Valley Bank was not an accident — it was a foretaste. That failure has exposed how crypto-linked deposits, digital-speed bank runs and opaque markets can overwhelm regulators before the risks become apparent. Yet the legislation now being considered would push more of that volatility deeper into the financial system, under the guise of innovation and clarity. If lawmakers fail to recognize the lessons of 2023, they will find themselves eyeing the same weaknesses that forced taxpayers to act before — and will inevitably be asked to do so again.
