USD Coin value falls after revealing $3.3bn held at Silicon Valley Bank
The value of the world’s fifth-biggest cryptocurrency, USD Coin (USDC), slumped to an all-time low on Saturday after Circle, the US firm behind the coin, revealed that $3.3bn of the reserves backing it were held at Silicon Valley Bank.
USDC is a stablecoin – cryptocurrencies designed to maintain a stable value – USDC’s value is supposed to mimic the dollar. But the coin broke its 1:1 dollar peg and fell as low as $0.87 on Saturday morning.
Circle announced on Friday that $3.3bn of its $40bn of USDC reserves are held at collapsed lender Silicon Valley Bank. But the effects of SVB’s collapse are only beginning to be understood.
California governor Gavin Newsom issued a statement Saturday that he’s been in communication with the White House and US treasury department.
“Everyone is working with FDIC [Federal Deposit Insurance Corporation] to stabilize the situation as quickly as possible, to protect jobs, people’s livelihoods, and the entire innovation ecosystem that has served as a tent pole for our economy,” he said.
Fears of a spreading contagion were also realized in the UK, where SVB’s subsidiary unit was set to be declared insolvent. Leaders of roughly 180 tech companies called chancellor Jeremy Hunt to intervene in the crisis.
Separately, a newly-formed, government-administered SVB entity, called the Deposit Insurance National Bank of Santa Clara, or DINBSC, sent a letter to an estimated 8,500 SVB employees offering 45 days of employment after which they would be let go, according to Bloomberg.
Silicon Valley Bank collapsed on
Friday in the largest US bank failure since the 2008 financial crisis, roiling global markets and stranding billions of dollars belonging to companies and investors. Worried depositors formed queues outside SVB’s branches hoping to withdraw funds beyond the $250,000 guaranteed by federal banking regulations.
The gathering fallout followed reports that SVB did not have a chief risk officer in place in the months leading up to the collapse, while more than 90% of its more than $212bn in deposits were not insured.
For now, concerns about contagion to other areas of the financial system appeared limited to crypto-currencies early Saturday.
But SVB, based in Santa Clara, California,
holds deposits of about one tenth the size of JPMorgan, the largest US bank. It abruptly collapsed after failing to raise money to meet withdrawal demand after saying it had sold about $21bn of securities from its portfolio, resulting in a $1.8bn loss for the first quarter.
Bloomberg estimated that SVB does business with almost half of all US venture capital-backed startups, and 44% of US venture-backed technology and healthcare companies that went public last year.
Those businesses, which rely on cheap money and the good-will of investors in search of a “unicorn” – a start-up with a billion-dollar valuation but little by way of cash flow – have been hit hard by rising interest rates.
SVB, the Wall Street Journal noted Saturday, was burdened by using shortterm money from depositors to invest in assets that could not be swiftly unloaded to meet customer withdrawals when new depositor funding dried up.
SVB chief executive officer Greg Becker said in a letter to shareholders that the bank had been hit by “continued higher interest rates, pressured public and private markets, and elevated cash-burn levels from our clients”.
But none may be more vulnerable than the crypto-business, already reeling from a broad collapse in the value of its tokens and the bankruptcy of the crypto-exchange FTX that led to the arrest of CEO Sam Bankman-Fried on fraud charges.
On Friday, Circle said in a tweet that it and USDC “continue to operate normally” while the firm waits for clarity on what will happen to Silicon Valley Bank depositors.
Circle did not immediately respond to a request for comment about the dollar peg, sent outside of US working hours.
Used in cryptocurrency trading, they have surged in value in recent years. USDC is the second-biggest stablecoin with a market cap of $37bn . The largest, Tether, has a market cap of $72bn, according to CoinGecko.
USDC’s price usually holds close to $1, making Saturday’s drop unprecedented. According to CoinGecko data, its previous all-time low was around $0.97 in 2018, though in 2022 it fell just below $0.99 when cryptocurrency markets were roiled by the collapse of crypto hedge fund Three Arrows Capital.
Traders have been on guard this week for signs of contagion in the financial sector and beyond from troubles for Silicon Valley Bank and crypto-focused Silvergate (SI.N), which this week disclosed plans to wind down operations and voluntarily liquidate.
Boston-based Circle said last week it had moved a “small percentage” of USDC reserve deposits held at Silvergate to its other banking partners.
The chief executive of cryptocurrency exchange Binance said in a tweet on Friday it had no exposure to Silicon Valley Bank, as did Tether Chief Executive Paolo Ardoino.
Stablecoin issuer Paxos and crypto exchange Gemini also tweeted that they do not have relationships with the bank.
Reuters contributed to this report
she had previously helped oversee “financial regulatory reforms”.
Around that time, federaldisclosurerecordsshow the bank was lobbying lawmakers on “financial regulatory reform” and the Systemic Risk Designation Improvement Act of 2015 – a bill that was the precursor to legislation ultimately signed by President Donald Trump that increased the regulatory threshold for stronger stress tests to $250bn.
Trump signed the bill despite a report from Democrats on Congress’s joint economic committee warning that under the new law, SVB and other banks of its size “would no longer be subject to nearly any enhanced regulations”.
The bill was supported in the Senate by 50 Republicans and 17 Democrats, including the Democratic Virginia Senator Mark Warner, for whom Becker held a fundraiser at his Menlo Park, California, home in 2016, according to an invitation obtained by the Sunlight Foundation and OpenSecrets. The bank’s political action committee also donated a total of $10,000 to Warner’s campaigns in the 2016 and 2018 election cycles.
In 2019, when the Federal Reserve proposed regulations implementing the deregulatory law, financial watchdogs warned that its regulations on Category IV institutions – as SVB was later classified due to its size and other risk factors – were far too weak.
“The proposal to significantly weaken enhanced prudential standards for Category IV firms could be disastrous,” Better Markets, a non-profit advocating for stricter financial regulations, wrote in a comment on the
Federal Reserve’s proposal. “Moreover, these are not small or insignificant firms. Recall that the smallest among this class of banks is over twice the size of the $50bn banks that automatically required enhanced prudential regulation under the Dodd-Frank Act as originally enacted.”
The final rule guaranteed that Category IV institutions are “not required to conduct and publicly report the results of a company-run stress test” and “reduces the required minimum frequency of liquidity stress tests and granularity of certain liquidity riskmanagement requirements”, according to Federal Reserve officials at the time.
In 2021, SVB passed the threshold of $100bn under management, triggering some additional scrutiny as a Category
IV bank but remaining exempt from the more frequent and detailed analyses that regulators perform to determine whether banks above $250bn of assets have sufficient capital to withstand a crisis.
A press release on Friday from the Federal Deposit Insurance Corporation noted that as of December 2022, SVB had $209bn in assets under management – keeping it below the $250bn threshold for which the bank had lobbied.
SVB is the biggest bank to collapse since Washington Mutual failed in 2008 during the financial crisis, and the second-biggest bank failure in US history.
Before Becker’s 2015 push, SVB had pressed Federal Reserve officials to limit regulatory scrutiny of midsized banks, arguing that “we are very concerned that the regulatory requirements for covered companies will end up trickling down to smaller financial institutions”.
In 2019, Becker was elected to serve on the board of directors at the Federal Reserve Bank of San Francisco. Becker left the board on Friday.
• This story was updated on 11 March 2023 to correct that Becker delivered his statement in person to the Senate committee. His statement was actually written and submitted to the committee.
trip.
“Zindell [was] like my shadow,” she told CNN. “He [was] like my son … my hipbone.”
Separately, according to CNN, Woodard’s father told reporters his son would’ve turned 34 on Thursday. “I’ve tried to make sense out of it and tried to be strong about it,” he said. “It just was a senseless crime.”
The South Carolina senator Republican Lindsey Graham called for legislation to classify Mexican drug cartels as terrorists, and threatened to “unleash the fury and the might of the United States.”
He made no mention that much of the violence in Mexico – which has stringent gun restrictions – is fuelled by drug sales within the United States and perpetrated with guns bought legally in the US before being smuggled across the border. Graham has repeatedly voted against substantial gun control measures in the US.
Such double standards only fuel a weary sense of outrage among Mexicans distraught at the violence and impunity dogging their country.
Thousands of Mexicans are kidnapped in their country annually, and authorities rarely try to rescue them or arrest those responsible. Some are eventually returned after payment of a ransom; many simply disappear without trace.
In this case, a taskforce involving the Mexican military, national guard and state police swung into action.
A video on Twitter posted by the Tamaulipas businessman Roberto Lee captured the reaction of many south of the border.
“It makes us feel like we need to be citizens of another country for our government to care about us,” said Lee. “We learned one thing – that the government can produce results, but it’s not producing them for Matamoros.”