Blockchain for Banking News

Circle says USDC stablecoin redeemable despite peg loss. Treasury won’t bail out SVB

USDC stablecoin

As reported yesterday, the USDC stablecoin lost its peg after issuer Circle revealed that $3.3 billion of its reserves were stuck in the failed Silicon Valley Bank (SVB), which the FDIC took control of Friday. Circle says the stablecoin is still redeemable one for one for fiat dollars and provided an update. Today Treasury Secretary Janet Yellen said SVB would not be bailed out. However, according to Bloomberg, a bidding process to acquire the bank ends today.

Circle’s update on the status of USDC

On Saturday, Circle said that issuance and redemption of its USDC stablecoin would resume as normal on Monday when banks open, and it remains redeemable one for one with fiat dollars.

The stablecoin price has recovered significantly, standing above 96 cents to the dollar after it fell as low as 87.6 cents in the early hours of Saturday morning.

The company holds 77% of USDC reserves ($32.4 bn) in Treasuries in a fund managed by BlackRock. The other 23% is held in cash. While it previously said it used six banks, currently, the split is three banks with $5.4 billion of its $9.7 billion in cash reserves held at BNY Mellon, a move Circle made last week. SVB currently holds $3.3 billion, which is stuck, and $1 billion is at Customers Bank. It has a transaction and settlement account at Signature Bank and has no exposure to Silvergate Bank, which is closing down.

Circle believes that because it made a $3.3 billion withdrawal request before the FDIC took over SVB, there’s a chance the transfer could be completed on Monday.

Failing that, it will raise capital if needed to make up the shortfall.

SVB’s potential sale

Bloomberg reported Sunday (today) that SVB is up for auction, with bids due by the end of Sunday. 

The government currently has no plans to rescue the bank. That’s according to Treasury Secretary Janet Yellen, who spoke on the topic today. Referring to the 2008 crisis when the owners of large systemic banks were bailed out, she said, “the reforms that have been put in place mean that we’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs.”

Estimates of the proportion of uninsured SVB depositors range from 85% to 93%, many of them businesses.

Asked if she expected a “deal or something to happen” to reassure investors before U.S. markets open Monday, Yellen responded, “We certainly are working to address the situation in a timely way.” 

SVB is the second largest U.S. bank failure, with the largest being Washington Mutual in 2008. That was put up for auction and acquired by JP Morgan.

According to Pitchbook, SVB CEO Greg Becker told employees he was working with the FDIC to find a buyer for all or part of the bank.

“My goal at the end of the day is to figure out how to preserve a small portion of the franchise value that we have spent so much time building, and hopefully find the right partner at the end of the day that the FDIC can work with to have this institution continue in some form or fashion,” Becker said.

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