“Today I settle all family business, so don't tell me you're innocent, Carlo.” – Michael Corleone
There are times when only a reference to The Godfather will do. Francis Ford Coppola’s iconic mafia masterpiece may be cliché, but it is hardly tired. The perennially enticing arc of the film is the seemingly reluctant transformation of Vito “Don” Corleone’s son, Michael, from a law-abiding war hero purposely kept distant from the dark arts into an heir steeled to take on the family’s sprawling criminal empire upon his father’s death. While Vito may have hoped his favorite son would achieve high political office through legitimate means, circumstances and intuition had other plans.
With Vito’s passing, so too went his personal commitment to “keep the peace” with the other major crime families. Michael, as the new Don, wastes little time quashing any doubt about how he intends to run things. He settles all the family’s scores in one fell swoop, putting firmly to rest questions about his toughness or ability to step out from under his father’s formidable shadow. The final act of the movie, in which Coppola flashes back and forth between Michael at his nephew’s baptism and Michael’s goons moving from one assassination to another, is gripping in its raw brutality.
We were reminded of this brilliant sequence as federal regulators moved swiftly to crush several banks tied to the crypto industry in the past week, one after another. While we had a hunch as to how things would go when we published Pandora’s Precedent last Wednesday, even we were surprised by the speed of events and the size of the body count. Within days, Silvergate and Signature Bank – the two banks that most aggressively facilitated payments into and out of the crypto universe – were defunct. Silicon Valley Bank, which catered to the venture capital firms who regularly fleeced retail investors through various crypto proxies during the height of the mania, was also in the hands of the Feds, having been seized during business hours on Friday. The subsequent demise of Signature was especially stunning, as was the matter-of-fact way in which the news was announced on Sunday evening:
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
Like Moe Greene on the massage table, Signature board member and former US Congressman Barney Frank was shocked by the cold-blooded assassination of the bank he helped oversee. He was interviewed by CNBC on Monday:
“According to Frank, Signature executives explored ‘all avenues’ to shore up its situation, including finding more capital and gauging interest from potential acquirers. The deposit exodus had slowed by Sunday, he said, and executives believed they had stabilized the situation.
Instead, Signature’s top managers have been summarily removed and the bank was shuttered Sunday. Regulators are now conducting a sales process for the bank, while guaranteeing that customers will have access to deposits and service will continue uninterrupted….
‘I think part of what happened was that regulators wanted to send a very strong anti-crypto message,’ Frank said. ‘We became the poster boy because there was no insolvency based on the fundamentals.’”
While the immediate consequences of these historic events are still being sorted, we have spent the past few days pondering the longer-term fallout for crypto. What does the future hold for the industry, and which dominoes are next likely to fall? Let’s indulge in some speculation.