The action taken by the Biden administration to protect SVB’s depositors is reasonable. In the absence of this, the tech sector would have a cash shortage in their operations, leading to enormous failures and cost-cutting that might trigger widespread layoffs.
The government’s move for SVB will “lower stress across the financial system, promote financial stability, and minimise any damage on enterprises, individuals, taxpayers, and the broader economy,” according to the joint regulatory news statement.
Silicon Valley Bank had $3.3 billion, or 8%, of Circle’s USDC reserves.
All SVB depositors would be protected, according to US federal officials.
The worst bank failure to occur in the US since the 2008 financial crisis occurred last weekend. Due to its inability to continue operating, Silicon Valley Bank (SVB) has been placed under the Federal Deposit Insurance Corporation’s (FIDC) receivership.
Exposure to SVB of $3.3 billion by Circle
As the bank exclusively concentrated on that area, the repercussions has significant consequences for the tech sector. 8 percent of the money supporting the USDC were kept by stablecoin issuer Circle at Silicon Valley Bank, or $3.3 billion. Circle’s stablecoin peg is in peril since the FIDC only covers deposits up to $250,000 in value.
But according to a statement released on Sunday by the Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and FIDC Chairman Martin Gruenberg, Circle and other SVB depositors will have access to their money on Monday so that business may proceed as usual.
According to the regulatory statement, “Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors, both insured and uninsured, after receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President.
Continue reading
- Using Bitcoin Quicker with Lightning Network
- Payments Industry Fintech Innovation in 2023
After receiving regulatory assurance, Circle announced automated USDC minting and redemption for consumers through its new banking partner in an official press release.
“We are encouraged to see important actions being taken by the US government and financial regulators to reduce risks originating from the banking sector. We’ve long supported full-reserve digital currency banking because it protects our foundational internet money and payment systems from the danger associated with fractional reserve banking, according to Circle Co-Founder and CEO Jeremy Allaire.
With a market valuation of over $40 billion for the USDC, Circle must retain that amount in cash or other assets to maintain the stablecoin’s peg. The corporation disclosed that six banks hold around 25% of its reserves in cash.
In order to “protect depositors,” New York regulators closed down Signature Bank on Sunday. Circle said that according to Signature Bank, it does not have any cash reserves.
What took place at SVB?
SVB, often known as Silicon Valley Bank, was the 16th-largest bank in the US. It was founded in 1983 to meet the need of Silicon Valley’s expanding tech sector. It provided a variety of products, including as loans, investment products, cash management, and commercial financing, in addition to deposit services.
The bank, which also made a tiny acquisition of Boston Private Financial Holdings, immediately profited from the tech boom as its deposits quadrupled to $198 billion between the end of 2019 and the first quarter of 2022. On the other hand, deposits in the US banking sector as a whole only increased by 37% throughout that time.
The bank purchased 5-year bonds and 10-year mortgage-backed securities with a fixed yield of around 1.5% using the flood of deposits.
Greg Becker, the CEO of SVB, predicted that we will likely invest capital in the 1.65%–1.75% area based on the present economic climate. “Agency mortgage-backed, mortgage collateral, and other items of that nature make up the great majority of that.”
They were sound investments at the time, but the increase in interest rates caused them to lose value. The bank also did a poor job of managing its risks. In January 2023, a new Chief Risk Officer took over for the departing one who had departed the position in April 2022.
The majority of SVB’s clients were closely knit IT organisations. Some of these clients began to withdraw money from the bank, which set up a feedback loop. The bank’s deposits decreased by 16 percent, from $198 billion at the end of March 2022 to $165 billion at the end of February 2023. In other terms, it was a “bank run” that led to the failure of the bank.
Other significant depositors in the ban besides Circle were Roku with $487 million, the insolvent BlockFi with $227 million, Roblox with $150 million, and many others. Several cryptocurrency businesses, like as Binance, Tether, Paxos, and Gemini, have all affirmed they have no exposure to the SVB’s collapse.
Other significant depositors in the ban besides Circle were Roku with $487 million, the insolvent BlockFi with $227 million, Roblox with $150 million, and many others. Several cryptocurrency businesses, like as Binance, Tether, Paxos, and Gemini, have all affirmed they have no exposure to the SVB’s collapse.
The action taken by the Biden administration to protect SVB’s depositors is reasonable. In the absence of this, the tech sector would have a cash shortage in their operations, leading to enormous failures and cost-cutting that might trigger widespread layoffs.
The government’s move for SVB will “lower stress across the financial system, promote financial stability, and minimise any damage on enterprises, individuals, taxpayers, and the broader economy,” according to the joint regulatory news statement.
