Yesterday evening, U.S. regulators stepped in to shore up confidence in the banking system following the FDIC takeover of Signature Bank on Sunday after SVB was shut on Friday. All depositors of both banks, including uninsured ones, will receive their money back with the regulators using a systemic risk exception. However, taxpayers will not foot the bill, in theory. Instead, there will be a special assessment on banks to top up the Deposit Insurance Fund that has a government backstop.
Following the revelation on Saturday that USDC stablecoin issuer Circle had $3.3 billion stuck at SVB bank, the stablecoin lost its peg. The funds represented 7.8% of its $42.1 billion reserves, but at one point, the price fell to 87.6 cents rather than its usual one dollar. After the announcement that SVB depositors will receive their funds, USDC is not yet fully back to par, with the price at 98.3 cents. On Saturday, Circle provided a status update on its backing assets.
The failure of New York’s Signature Bank will impact the crypto sector after the announcement of an orderly closure of specialist crypto bank Silvergate on Wednesday last week. Signature was a more diversified bank and was reducing the amount of crypto deposits it held. However, fears following the closure of SVB caused a stampede.
Signature was one of the most significant banks that provided on and off-ramps to crypto, and Circle mentioned its use as a settlement bank in its Saturday update.
As a result, Signatures SigNet likely cannot be used for redemptions. Instead, Circle’s CEO Jeremy Allaire said BNY Mellon would provide settlement for USDC. He also mentioned plans to bring on a new transaction banking partner Cross River Bank in the next day or so with automated minting and redemption.
BNY Mellon’s original association with Circle was to provide custody for the USDC reserve Treasuries held in the BlackRock management money market fund. As of last week, it also held $5.4 billion of Circle’s cash reserves.
Meanwhile, earlier this month, U.S. Treasury undersecretary Nellie Liang said that a future wholesale digital dollar issued by the central bank could potentially be used as a backing asset for stablecoin issuers. That would avoid confidence issues in banks that hold stablecoin reserve assets.
- USDC stablecoin loses peg. $3.3bn stuck in failed SVB bank
- Circle says USDC stablecoin redeemable despite peg loss. Treasury won’t bail out SVB