Barney Frank, co-sponsor of historic Wall Street reform legislation in 2010, said the collapse of two banks last week happened for different reasons, but that regulators are responding with a "clear signal" about digital currency.
Frank, on the board of New York-based Signature Bank, said on Newsmax's "Wake Up America" that "there was no trouble" until Silicon Valley Bank was shuttered by California regulators after a failed share sale that drained $42 billion in deposits in one day.
"We were in a grab. We got collapsed," Frank said of Signature Bank. "There's a very real difference between SVB and our bank.
"We were the victim, I think … of a contagion," he said. "I think that it would have been saved. We'll get … an answer to that, by the way, because FDIC [Federal Deposit Insurance Corporation] will be selling my bank. I think somebody's going to get a very good deal. They're going to get to buy a bank that is in really pretty good shape."
According to Frank, "part of the problem was from the regulated standpoint, our bank had gotten involved in digital [currency].
"Now, we did it in a very sound way. … We allowed and facilitated our customers, if they wanted, to deal with each other and digital. But I think one of the things that come out of this is the regulators are sending a clear signal: Stay away from digital.
"There was no sign of trouble until SVB failed. That's what triggered it."
Frank also defended the 2010 legislation he co-sponsored, known as Dodd-Frank.
"It worked, clearly, because what we said was, 'We had a problem that we've solved' back then … underfinanced derivatives and bad mortgages," he said.
"We also said, 'But something could happen again. We don't know what it will be.' Well, it turned out digital has been a very destabilizing factor."
Frank said the federal government is stepping in "and "it's preventing the contagion."
"What happened in 2008 was the failure of a couple of institutions generated a domino effect by so many other ones … indebted to each other without the money to pay it off," he added about that bank crisis. "That's not happening now."
Frank said he doesn't believe more banks will follow either SVB or Signature.
"We changed the law so they would not be able anymore to do what they did ... To get them over their liquidity question," he said. "The Fed is doing that, and I think that will prevent the contagion. That's exactly what we said we were trying to do" in 2008.
He also said there's no way now to predict if there will be a big self-off or if the markets will calm.
"There's no point speculating," he said. "I think what the Fed has done, both with regard to the …. backstop, bailout, whatever you want to call it for lending money, giving money to deal with the liquidity crisis and making sure that people meet payback — I don't think there's a practical reason for the sell off."
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