Prompt Regulator Action And Stablecoin Issuer Assurances See USDC Repeg

A March 12, 2023, joint statement by the Department of the Treasury, Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) advised that depositors for both the Signature Bank, New York and Silicon Valley Bank, Santa Clara, California, will have access to their money effective March 13, 2023.

On March 13, 2023, the Bank of England announced that it had sold Silicon Valley Bank UK Limited, the UK subsidiary of the US bank, to HSBC UK Bank Plc (HSBC) in order to ensure continuity of banking services, to minimise disruption to the UK technology sector and to restore confidence in the financial system. Silicon Valley Bank was a key lender for venture-backed technology startups.

Earlier on March 10, 2023, the California Department of Financial Protection & Innovation shut down Silicon Valley Bank, a financial services provider to several tech startups and life sciences companies, following a run on the bank. On March 8, 2023, the Bank announced losses of over US$ 1.8 Billion.

Circle, the stablecoin USD Coin (USDC) issuer, confirmed that they held a reserve deposit of US$3.3 billion at the closed Silicon Valley Bank. In a Tweet on Friday, March 11, 2023, Circle advised that it had attempted to transfer its assets from Silicon Valley Bank before the bank went under.

The joint announcement statement by the Department of the Treasury, Federal Reserve, and the Federal Deposit Insurance Corporation affirmed that all depositors with Silicon Valley Bank would be made whole.

On March 12, 2023, following the joint statement by U.S. regulators, Circle further advised that its US$3.3 billion USDC reserve deposit held at Silicon Valley Bank would be fully available on Monday, March 13, 2023, and that no USDC cash reserves were held at Signature Bank.

Last week saw the fall of Silvergate Bank, a crypto-friendly bank after it had announced in a regulatory filing that it was under-capitalized. A number of the bank’s key clients, including Circle, Coinbase and Paxos, announced the end of their relationship with the bank. 

Signature Bank, a New York-based bank, was closed on March 12, 2023. New York State Regulators said that keeping the bank open could threaten the stability of the entire U.S. financial system.

The regulators’ joint statement and assurances from Circle appear to have calmed the crypto markets. As of March 13, 2023, USDC has regained its dollar peg. Over the past 24 hours, CoinGecko data shows that Bitcoin is trading up 14% at US$24,000 and Ether up over 8% at US$ 1,680 as of press time. It remains uncertain as to where the crypto contagion may next emerge.

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