The financial sector has endured a few chaotic days. In particular, for USDC stablecoin and Silicon Valley Bank and its stakeholders, since the lender swung from being presumed robust and profitable to being shut down by authorities in less than 48 hours.
Now, a lifebuoy has just been tossed to save the drowning bank and others sinking deep into trouble.
The U.S. government and financial regulators have announced that individuals having assets deposited at the troubled Silicon Valley Bank will have access to their funds.
USDC Reserves Accessible Today
In a tweet Monday morning, Circle Co-founder and CEO Jeremy Allaire disclosed that the company was “heartened” by the U.S. Federal Reserve’s efforts to address risks posed by the “fractional” banking system.
Update thread on USDC
We were heartened to see the US government and financial regulators take crucial steps to mitigate risks extending from the fractional banking system.
100% of deposits from SVB are secure and will be available at banking open tomorrow.
— Jeremy Allaire (@jerallaire) March 12, 2023
Allaire stated that “100%” of Silicon Valley Bank’s deposits are safe and will be accessible when the bank opens today, March 13.
In his tweet, Allaire added the company would rely on BNY Mellon to facilitate the process of minting and redemption.
Circle revealed late Friday that around $3.3 billion of its $40 billion USDC reserves remained at Silicon Valley Bank. This comes after the share price of the tech-focused lender plummeted in reaction to a panicked consumer run on deposits.
Moments after a capital crisis precipitated the second-largest failure of a U.S. financial institution in history, SVB’s downfall sent shockwaves through the cryptocurrency and global markets.
Allaire said:
“We are committed to building robust and automated USDC settlement and reserve operations with the highest quality and transparency.”
U.S. Gov’t To The Rescue
On Sunday night, U.S. regulators announced emergency measures to contain the contagion caused by the failure of Santa Clara, California-based SVB and a guarantee to protect all depositors.
The announcement was made in a joint statement by U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and the Federal Deposit Insurance Corp. Chairman Martin Gruenberg.
“Today we are taking decisive actions to safeguard the U.S. economy by strengthening public confidence in our banking system,” the joint press release read.
According to the statement, after obtaining a recommendation from the FDIC and Federal Reserve boards, depositors will have full access to their funds beginning March 13.
“To support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors,” the press statement added.
Circle Assured From Loss
This means that Circle will not suffer a loss of funds as a result of the bailout as depositors will be returned to their original state.
The U.S. government’s emergency procedures were also extended to other financial institutions, including the defunct Signature bank.
Meanwhile, the Payment Stablecoin Act, which is still being actively pursued by Congress, would establish in law a system in which stablecoin money would be stored with cash at the U.S. central bank and short-term Treasury bills, Allaire pointed out.
“We need this law now more than ever if we want a truly safe financial system,” the Circle CEO said.
Indeed, the Payment Stablecoin Act, which remains a very active pursuit for Congress, would enshrine in law a regime where stablecoin funds would be held with cash at the Fed and short-term T-Bills. We need this law now more than ever if we want a truly safe financial system.
— Jeremy Allaire (@jerallaire) March 12, 2023
USDC Regains Dollar Peg; Bitcoin Up
Futures associated with the Dow Jones Industrial Average jumped more than 300 points in pre-market trading in response to the developments.
Data from crypto market tracker Coingecko shows that cryptocurrency prices have also recovered substantially, with Bitcoin up 10% in the last 24 hours.
Circle’s USDC, the second-largest stablecoin, is regaining its $1 peg following Allaire’s assurance that its holdings are secure.
According to Coingecko data, USDC is currently trading at $0.99, up 3.3% in the last 24 hours.
-Featured image from Freepik
