Former Ripple Adviser Michael Barr To Lead Review of SVB Supervision

It comes after the $209 billion bank failed after a $42 billion bank run.

The Federal Reserve Board has confirmed that Vice Chair for Supervision Michael S. Barr will lead a review into the supervision and regulation of the failed Silicon Valley Bank. 

The Fed made this known in a press release on Monday, disclosing that it would release the findings of this review by May 1. 

Notably, Barr joined Ripple as an adviser in 2015. However, he is no longer listed as a Ripple adviser, and it is unclear when he left the role. Before this, Barr played a critical role in the Obama administration’s Treasury department as one of the key architects of the Dodd-Frank Act, which prevented banks from trading customer deposits. Nominated by President Joe Biden, he assumed the role of vice chair of supervision in July 2022. It is one of the most important roles in United States finance regulation. 

The latest move by the Fed follows Biden’s demand for a “full accounting” of what led to the collapse of the regional bank. The Federal Deposit Insurance Corporation (FDIC) was forced to take over the $209 billion bank over the weekend after it faced a whopping $42 billion in withdrawal requests in less than two days.

“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” Barr said per the Fed’s statement. 

While SVB largely served as a lender to tech startups in the region, it bears mentioning that it also served some big names with significant crypto involvement. These include Circle, Ripple, and Andreessen Horowitz (a16z). As highlighted in previous reports, the uncertainty surrounding the wholeness of Circle’s USD Coin’s reserve caused the stablecoin to lose its dollar peg over the weekend.

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The FDIC has opted to back all customer deposits in the bank to prevent a wider panic and run on otherwise healthy institutions, as reported yesterday. Pundits have blamed the bank’s failure on the investment of deposits in long-term securities and failure to hedge against Fed rate hikes. 

Custodia Bank’s CEO Reacts

Notably, Barr’s leadership of the review of SVB supervision has elicited a response from Custodia Bank Chief Executive Officer Caitlin Long. 

The Custodia bank chief, in a series of tweets yesterday, took a swipe at Barr for his role in denying the firm’s application to become a member of the Federal Reserve System. As highlighted by Long, the Fed had dismissed Custodia Bank’s 100% cash model as “unsafe & unsound.” Meanwhile, in a speech on Thursday, less than 24 hours before regulators were forced to step in and close down SVB, Barr had asserted that banks under the Fed’s regulation “are well protected from bank runs.”

Consequently, Long has dubbed Barr’s latest statement in yesterday’s press release as an admission of error. Long suggests that she and other pundits had long foreseen the recent bank runs, again requesting a seat at the table to help regulators understand how.

Recall that the Custodia chief, in an article last month, had bashed regulators and lawmakers for spurning the help of good actors in the crypto space. Long asserted that she had warned regulators of fraudulent crypto companies and the mounting risk of bank runs. However, to all appearances, she suggested that regulators either did not see these warnings or simply failed to act on them.

Meanwhile, other crypto community members have pointed out the irony in the Fed investigating the Fed. Feeding more into this narrative, it bears mentioning that SVB’s Chief Executive Officer Greg Becker was a San Francisco Federal Reserve Board director until Friday when regulators were forced to take over his bank.

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