The executives of stablecoin issuer Circle and bankrupt cryptocurrency lender BlockFi were questioned by two members of Congress investigating so-called “mutual scraping arrangements” that allegedly took place with Silicon Valley Bank ( SVB), now bankrupt.
On April 9, letters from Sen. Elizabeth Warren and Rep. Alexandria Ocasio-Cortez (AOC) were sent to Circle, BlockFi and 12 other non-crypto tech companies asking a series of questions about each company’s relationship with SVB.
Lawmakers said more about SVB’s “coddled” and “white glove” treatment of its biggest depositors is needed to understand whether those companies played a role in SVB’s collapse.
Jeremy Allaire and Zac Prince, the respective chief executives of Circle and BlockFi, were asked about the length of their financial relationship with SVB, the amounts deposited with the bank as well as the “agreements” between their companies.
In addition, the couple wanted to know if SVB offered “perks” such as low-interest mortgages or SVB-sponsored “ski trips, lectures and fine dining.”
“Congress, banking regulators and the public owe an explanation for the bank’s hyper-reliance on tech industry companies and investors,” Warren and AOC wrote.
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They added that the breadth of SVB depositors in the tech industry results in “an unusually high percentage of deposits” not insured by the Federal Deposit Insurance Corporation (FDIC) and asked executives about “the role that companies like the yours could have played in the rush for $42 billion in a single day on SVB.
“It is important to get information on these factors to understand how SVB failed and how to prevent the next failure,” they added.
Warren and AOC said they believe this may explain why some customers, such as Circle, have placed extremely large amounts of uninsured deposits with SVB.
Shortly after SVB collapsed, Circle revealed that they had tied up $3.3 billion at SVB. While BlockFi was found to have $227 million in uninsured deposits with the bank.
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