The Fed Had Already Spotted Big Problems at SVB Before Its Collapse

And starting in 2021 — long before the run on Silicon Valley Bank — the Federal Reserve had “repeatedly warned the bank that it had problems,” reports the New York Times:

In 2021, a Fed review of the growing bank found serious weaknesses in how it was handling key risks. Supervisors at the Federal Reserve Bank of San Francisco, which oversaw Silicon Valley Bank, issued six citations. Those warnings, known as “matters requiring attention” and “matters requiring immediate attention,” flagged that the firm was doing a bad job of ensuring that it would have enough easy-to-tap cash on hand in the event of trouble.
But the bank did not fix its vulnerabilities. By July 2022, Silicon Valley Bank was in a full supervisory review — getting a more careful look — and was ultimately rated deficient for governance and controls. It was placed under a set of restrictions that prevented it from growing through acquisitions. Last autumn, staff members from the San Francisco Fed met with senior leaders at the firm to talk about their ability to gain access to enough cash in a crisis and possible exposure to losses as interest rates rose.

It became clear to the Fed that the firm was using bad models to determine how its business would fare as the central bank raised rates: Its leaders were assuming that higher interest revenue would substantially help their financial situation as rates went up, but that was out of step with reality. y early 2023, Silicon Valley Bank was in what the Fed calls a “horizontal review,” an assessment meant to gauge the strength of risk management. That checkup identified additional deficiencies — but at that point, the bank’s days were numbered. In early March, it faced a run and failed within a matter of days….

The picture that is emerging is one of a bank whose leaders failed to plan for a realistic future and neglected looming financial and operational problems, even as they were raised by Fed supervisors. For instance, according to a person familiar with the matter, executives at the firm were told of cybersecurity problems both by internal employees and by the Fed — but ignored the concerns.
The Federal Reserve Bank system has 12 distircts, and the one overseeing California had a board of directors which included SVB’s CEO Greg Becker, the article points out. “While board members do not play a role in bank supervision, the optics of the situation are bad.”

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Justice Department Investigating TerraUSD Stablecoin Collapse

The U.S. Justice Department is probing last year’s collapse of the TerraUSD stablecoin, raising the possibility of criminal charges being filed against the stablecoin’s creator, Do Kwon, according to the Wall Street Journal, citing sources familiar with the matter. CoinDesk reports: The FBI and the Southern District of New York have interviewed former employees of Terraform Labs, the company behind TerraUSD, and sought to interview others, according to the Journal. Manhattan federal prosecutors are also examining chat-group discussions among prominent trading firms Jump Trading Group, Jane Street Group and failed FTX affiliate Alameda Research involving a potential bailout of TerraUSD, according to a separate report from Bloomberg, citing a person familiar with the matter.

Such a bailout never took place, but the investigation is seeking to determine whether the firms were involved in possible market manipulation. TerraUSD and its sister token, Luna, both eventually collapsed, setting off a series of high-profile failures of prominent crypto firms, including hedge fund Three Arrows capital, Voyager Digital and FTX. The Department of Justice previously alleged that an unnamed crypto firm — believed to be Jump — had bailed out TerraUSD once before, in an indictment against FTX founder Sam Bankman-Fried. In February, the SEC filed a civil fraud lawsuit against Kwon and Terraform Labs, accusing them of misleading investors about TerraUSD’s risks.

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Texts from Binance Reveal Plan to Elude US Authorities

Reuters writes:
Binance, one of the world’s largest cryptocurrency exchanges, developed a plan to avoid the threat of prosecution by U.S. authorities as it started an American entity in 2019, the Wall Street Journal reported on Sunday.

The Wall Street Journal reports:
Any lawsuit from U.S. regulators would be like “nuclear fall out” for Binance’s business and its officers, a Binance executive warned colleagues in a 2019 private chat. Worried about the threat of prosecution, Binance set out on a plan to neutralize U.S. authorities, according to messages and documents from 2018 to 2020 reviewed by The Wall Street Journal as well as interviews with former employees.

The strategy centered on building a bare-bones American platform, Binance.US, that would license Binance’s technology and brand but otherwise appear to be wholly independent of Binance.com. It would shield from U.S. regulators’ scrutiny the larger Binance.com exchange, which would exclude U.S. users. But Binance and Binance.US have been much more intertwined than the companies have disclosed, mixing staff and finances and sharing an affiliated entity that bought and sold cryptocurrencies, according to the interviews and the messages and documents reviewed by the Journal. Binance developers in China maintained the software code supporting Binance.US users’ digital wallets, potentially giving Binance access to U.S. customer data.

If U.S. regulators conclude that these links mean Binance has control over a U.S. company, they could claim the power to police Binance’s entire business, which, to many investors, has been a black box since the start. This would also put Binance’s billionaire founder and chief executive, Changpeng Zhao, and his finances under closer scrutiny…. Developers in Shanghai maintained key software functions at Binance.US at least through the summer of 2021, the Journal has reported. The Shanghai developers’ contracts were with Binance, not with the U.S. platform, according to a person familiar with the agreements.

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Larry Magid: Utah Bill Threatens Internet Security For Everyone

“Wherever you live, you should be paying attention to Utah Senate Bill 152 and the somewhat similar House Bill 311,” writes tech journalist and long-time child safety advocate Larry Magid in an op-ed via the Mercury News. “Even though it’s legislation for a single state, it could set a dangerous precedent and make it harder to pass and enforce sensible federal legislation that truly would protect children and other users of connected technology.” From the report: SB 152 would require parents to provide their government-issued ID and physical address in order for their child or teenager to access social media. But even if you like those provisions, this bill would require everyone — including adults — to submit government-issued ID to sign up for a social media account, including not just sites like Facebook, Instagram, Snapchat and TikTok, but also video sharing sites like YouTube, which is commonly used by schools. The bill even bans minors from being online between 10:30 p.m. and 6:30 a.m., empowering the government to usurp the rights of parents to supervise and manage teens’ screen time. Should it be illegal for teens to get up early to finish their homework (often requiring access to YouTube or other social media) or perhaps access information that would help them do early morning chores? Parents — not the state — should be making and enforcing their family’s schedule.

I oppose these bills from my perch as a long-time child safety advocate (I wrote “Child Safety on the Information Highway” in 1994 for the National Center for Missing & Exploited Children and am currently CEO of ConnectSafely.org). However well-intentioned, they could increase risk and deny basic rights to children and adults. SB 152 would require companies to keep a “record of any submissions provided under the requirements,” which means there would not only be databases of all social media users, but also of users under 18, which could be hacked by criminals or foreign governments seeking information on Utah children and adults. And, in case you think that’s impossible, there was a breach in 2006 of a database of children that was mandated by the State of Utah to protect them from sites that displayed or promoted pornography, alcohol, tobacco and gambling. No one expects a data breach, but they happen on a regular basis. There is also the issue of privacy. Social media is both media and speech, and some social media are frequented by people who might not want employers, family members, law enforcement or the government to know what information they’re consuming. Whatever their interests, people should have the right to at least anonymously consume information or express their opinions. This should apply to everyone, regardless of who they are, what they believe or what they’re interested in. […]

It’s important to always look at the potential unintended consequences of legislation. I’m sure the lawmakers in Utah who are backing this bill have the best interests of children in mind. But this wouldn’t be the first law designed to protect children that actually puts them at risk or violates adult rights in the name of child protection. I applaud any policymaker who wants to find ways to protect kids and hold technology companies accountable for doing their part to protect privacy and security as well as employing best-practices when it comes to the mental health and well being of children. But the legislation, whether coming from Utah, another state or Washington, D.C., must be sensible, workable, constitutional and balanced, so it at the very least, does more good than harm.

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Are Citywide Surveillance Cameras Effective?

The Washington Post looks at the effectiveness — and the implications — of “citywide surveillance” networks, including Memphis’s SkyCop , “built on 2,100 cameras that broadcast images back to a police command center every minute of every day.”

Known for their blinking blue lights, the SkyCop cameras now blanket many of the city’s neighborhoods, gas stations, sidewalks and parks. The company that runs SkyCop, whose vice president of sales previously worked for the Memphis police, promotes it as a powerful crime deterrent that can help “neighborhoods take back their streets.” But after a decade in which Memphis taxpayers have paid $10 million to expand the surveillance system, crime in the city has gone up….

No agency tracks nationwide camera installation statistics, but major cities have invested heavily in such networks. Police in Washington, D.C., said they had deployed cameras at nearly 300 intersections by 2021, up from 48 in 2007. In Chicago, more than 30,000 cameras are viewable by police; in parts of New York City, the cameras watch every block. Yet researchers have found no substantive evidence that the cameras actually reduce crime….

In federal court, judges have debated whether round-the-clock police video recording could constitute an unreasonable search as prohibited by the Fourth Amendment. Though the cameras are installed in public areas, they also capture many corners of residential life, including people’s doors and windows. “Are we just going to put these cameras in front of everybody’s house and monitor them and see if anybody’s up to anything?” U.S. Circuit Judge O. Rogeriee Thompson said during oral arguments for one such case in 2021….

Dave Maass, a director at the digital rights group Electronic Frontier Foundation who researches police surveillance technology, said these systems have expanded rapidly in the United States without real evidence that they have led to a drop in crime. “This often isn’t the community coming in and asking for it, it’s police going to conferences where … vendors are promising the world and that they’ll miraculously solve crimes,” Maass said. “But it’s just a commercial thing. It’s just business.”
Nonetheless, the Post notes that in Memphis many SkyCop cameras are even outfitted “with license-plate recognition software that records the time and location of every passing car.”

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Member of Congress Reads AI-Generated Speech On House Floor

U.S. Rep. Jake Auchincloss read a speech on the floor of the U.S. House that was generated by AI chatbot ChatGPT. “Auchincloss said he prompted the system in part to ‘write 100 words to deliver on the floor of the House of Representatives’ about the legislation,” reports the Associated Press. “Auchincloss said he had to refine the prompt several times to produce the text he ultimately read. His staff said they believe it’s the first time an AI-written speech was read in Congress.” From the report: The bill, which Auchincloss is refiling, would establish a joint U.S.-Israel AI Center in the United States to serve as a hub for AI research and development in the public, private and education sectors. Auchincloss said part of the decision to read a ChatGPT-generated text was to help spur debate on AI and the challenges and opportunities created by it. He said he doesn’t want to see a repeat of the advent of social media, which started small and ballooned faster than Congress could react. “I’m the youngest parent in the Democratic caucus, AI is going to be part of my life and it could be a general purpose technology for my children,” said Auchincloss, 34.

The text generated from Auchincloss’s prompt includes sentences like: “We must collaborate with international partners like the Israeli government to ensure that the United States maintains a leadership role in AI research and development and responsibly explores the many possibilities evolving technologies provide.” “There were probably about a dozen of my colleagues on the floor. I bet none of them knew it was written by a computer,” he said. Lawmakers and others shouldn’t be reflexively hostile to the new technology, but also shouldn’t wait too long before drafting policies or new laws to help regulate it, Auchincloss said. In particular, he argued that the country needs a “public counterweight” to the big tech firms that would help guarantee that smaller developers and universities have access to the same cloud computing, cutting edge algorithms and raw data as larger companies.

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Symbolic Wyoming Proposal Urges Voluntary Phase-out of EV Purchases by 2035

Though the state of Wyoming is home to one of America’s largest wind farms, “Wyoming’s legislature is considering a resolution that calls for a phaseout of new electric vehicle sales by 2035,” reports Engadget:

In the proposed resolution, a group of lawmakers led by Senator Jim Anderson says Wyoming’s “proud and valued” oil and gas industry has created “countless” jobs and contributed revenue to the state’s coffers. They add that a lack of charging infrastructure within Wyoming would make the widespread use of EVs “impracticable” and that the state would need to build “massive amounts of new power generation” to “sustain the misadventure of electric vehicles.” SJ4 calls for residents and businesses to limit the sale and purchase of EVs voluntarily, with the goal of phasing them out entirely by 2035.

If passed, the resolution would be entirely symbolic. In fact, it’s more about sending a message to EV advocates than banning the vehicles altogether. To that point, the final section of SJ4 calls for Wyoming’s Secretary of State to send President Biden and California Governor Gavin Newsom copies of the resolution. “One might even say tongue-in-cheek, but obviously it’s a very serious issue that deserves some public discussion,” Senator Boner, one of the bill’s co-sponsors, told the Cowboy State Daily. “I’m interested in making sure that the solutions that some folks want to the so-called climate crisis are actually practical in real life. I just don’t appreciate when other states try to force technology that isn’t ready.”

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