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In a meeting on October 4-5, the Basel Committee on Banking Supervision (BCBS) looked at the various causes that may have contributed to the failures of Silicon Valley Bank, Signature Bank, and First Republic Bank. It concluded that so-called 'crypto assets' concentrated in a small number of banks was one of the three major things that played a role. https://www.bis.org/press/p231005.htm

"We analyze U.S. banks' asset exposure to a recent rise in the interest rates with implications for financial stability. The U.S. banking system's market value of assets is $2 trillion lower than suggested by their book value of assets accounting for loan portfolios held to maturity. Marked-to-market bank assets have declined by an average of 10% across all the banks, with the bottom 5th percentile experiencing a decline of 20%. We illustrate that uninsured leverage (i.e., Uninsured Debt/Assets) is the key to understanding whether these losses would lead to some banks in the U.S. becoming insolvent-- unlike insured depositors, uninsured depositors stand to lose a part of their deposits if the bank fails, potentially giving them incentives to run. "

Calls for "payment banks" are spreading in the wake of the Silicon Valley Bank (SVB) debacle and the teetering of other "community banks". "It's tempting in light of SVB's failure to assume that the insured deposit limit needs to be raised, but that solution creates new problems. A better approach would be for the U.S. to follow the example of other countries and create "payment banks" that take little-to-no risk, are highly regulated, and have access to the payment network. They would be a place where companies could park funds - like venture capital investment earmarked for payroll - without exposing themselves to the risks that normal banks create."

However, the Federal Reserve has been blocking non-lending banks from accessing Fed payment systems, though, which means the "safe banks" either cannot operate at all or cannot provide the very "safe banking" services that consumers want. Custodia Bank is one such bank, and its CEO Caitlin Long makes an interesting point about the soon-to-be-launched FedNow fast payments platform: "In the thick of today's social media-accelerated, online-banking accelerated banking crisis, the "borrow short-term and lend long-term" model is less stable than it has ever been. And it's about to become even less stable - because the speed of money movement in the U.S. is scheduled to accelerate this July, when the new FedNow payment system comes online. Intended to replace Fedwire, FedNow will allow depositors to access their bank deposits 24/7/365. Just imagine how much worse today's banking crisis would be if panicked depositors could move their funds during the news-filled weekends. [

"Had Circle been as opaque as its competitors, no one would have known that Silicon Valley Bank was its banker and the weekend run on USDC probably would never have occurred. The lesson would seem to be: Don't be transparent or, if you need to be transparent, don't be transparent about your shortcomings."

"The crisis that has engulfed crypto in the last year is a crisis of fractional reserve banking. Silvergate Bank and Signature Bank NY were fractional reserve banks. So too were Celsius Network, Voyager, BlockFi, Babel Finance and FTX. And still standing are the crypto fractional reserve banks Coinbase, Gemini, Binance, Nexo, MakerDAO, Tether, Circle, and, I would argue, every one of the DeFi staking pools. All of these are doing some variety of fractional reserve banking. Custodia Bank and Kraken Finance claim to be full-reserve banks - but 100% reserve backing for deposits is both hard to prove and not a guarantee of safety. What do I mean by "fractional reserve banking"? My definition might surprise you. For me, fractional reserve banking simply means that the composition of a bank's assets is less liquid than that of its liabilities."