U.S. Bank Regulators Say Deposits Will Be Covered For Failed Banks; Crypto Sighs With Relief

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historic weekend – U.S. Treasury

In an historic joint statement on Sunday afternoon led by U.S. Treasury along with The Federal Reserve and The Federal Deposit Insurance Corporation (FDIC), the bank regulators announced 100% of all deposits would be covered by the FDIC for two failed banks – Silicon Valley Bank (SVB) and Signature Bank – and any other “eligible depository institution” (i.e. a bank) that might show signs of imminent insolvency. The bank failures were the second and third largest in U.S. history.

Floating along in the financial flotsam and jetsam was Circle, issuers of the USDC stablecoin, as well as other crypto companies whose deposits were trapped at the failing institutions (more below) and could have potentially lead to catastrophic consequences for the businesses. 

The move by the bank regulators also averts a gathering storm of “bank runs” among small, regional U.S. banks this week where depositors would have fled with their funds to the safe haven of much larger banks (Citi, J.P. Morgan, etc.).

The statement:

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank (SVB), Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

That last line means shareholders of failed banks get nothing unlike some banks in the 2008 financial crisis.

Read the U.S. government press releases:

historic weekend – New York State

As also referenced in the U.S. Treasury’s joint statement, Signature Bank was closed by the New York Department of Financial Services (NYDFS) after a bank run similar to SVB’s. Those deposits will be covered, too.

“Superintendent Adrienne A. Harris announced today that the NYDFS has taken possession of Signature Bank, pursuant to Section 606 of New York Banking Law, in order to protect depositors. DFS appointed the Federal Deposit Insurance Corporation (FDIC) as receiver of the bank.”

Signature was an important on ramp for many companies seeking to connect U.S. fiat currency to crypto exchanges. This coming week will be a scramble as companies make new banking partners.


historic weekend – Circle

What a hairy ride it was for Circle and its stablecoin USDC this past weekend.

Late last night, the company sounded the all clear. The USDC $1 peg had been restored after seeing it deflate as low as 88 cents on Saturday. In addition, new banking partner Cross River Bank had come aboard to facilitate a critical connection to the fiat money system for Circle and redemptions through BNY Mellon had been “expanded.”


The TL;DR version of the long weekend for Circle began with its reserves for the USDC stablecoin appearing threatened due to liquidity challenges caused by Silicon Valley Bank’s (SVB) implosion on Friday.

Circle said in a tweet late Friday that “$3.3 billion of the ~$40 billion of USDC reserves remain at SVB,” but the company expected the remaining balance to be moved to new banks once the wires initiated on Thursday complete. Thereafter, the USDC stablecoin de-pegged reaching a low of 88 cents on Saturday morning rather than the usual $1 thereby inspiring visions of the Terra UST collapse last May.

Also late Friday, both Coinbase (tweet) and Binance (tweet) temporarily suspended any trades with USDC.

On Saturday afternoon, Circle tried to assure customers in a blog post (read it) that all holders of USDC would be made whole. This appeared to calm market fears and restored USDC to nearly 97 cents.

It wasn’t the first time the company had to find its way through market turmoil. Only 10 days earlier, Circle was defending the efficacy of its banking partners in light of the collapse of Silvergate Capital.

Meanwhile, Ether and Bitcoin have showed strong gains since achieving new 30-day lows on Friday  – is it a flight to decentralized finance?

historic weekend – Washington reacts

“…I’m firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again… I’ll have more to say on this tomorrow morning.” – U.S. President Joseph Bidensee Twitter

“This was the first Twitter-fueled bank run. At this time, it is important to remain levelheaded and look at the facts – not speculation – when assessing the right path forward…” – House Financial Services Chair Rep. Patrick McHenry (R, NC) see press release

“…Today’s actions will enable workers to receive their paychecks and for small businesses to survive, while providing depository institutions with more liquidity options to weather the storm…” Joint statement by Senate Banking Chair Senator Sherrod Brown (D, OH) and House Financial Services Ranking Member Rep. Maxine Waters (D, CA)see press release

“I strongly believe it is important we bring our markets to a calm and orderly resolution. (…) We deserve to know what exactly happened and why.”Senate Banking Ranking Member Senator Tim Scott (R, SC) – see press release

“It is unacceptable that Senate Republicans were excluded from Treasury’s briefing to Congress this evening. The lack of transparency & responsiveness from the Biden administration has been galling. The administration has the responsibility to keep ALL members updated in real time.” – Senate Banking Committee GOPsee Twitter

“While today’s actions will fortunately calm market fears, it is an upsetting precedent. Based on news reports, the FDIC seems to have rejected market buyers of SVB & instead turned the Fed & Treasury into an even bigger safety net.” – Senator Bill Hagerty (R, TN)see Twitter

Canaries can send warnings, but it’s often fatal for the canary. #SVB has many layers of failure, but the combination and consequences of bad fiscal, monetary, and regulatory policy are more widespread than has been detected…” – Rep. Warren Davidson (R, OH)see Twitter

“…Without speaking to any individual entity or person, we will investigate and bring enforcement actions if we find violations of the federal securities laws.” – SEC Chair Gary Genslersee press release

“Regional & local banks are critical to starting & supporting small businesses of all kinds. If depositors that account for most or much of these banks’ capital are afraid that they can lose their deposits, depositors will move their capital to a handful of NYC money center banks.” – Senator Mitt Romney (R, UT) prior to the announcement from U.S. Treasury – see Twitter

bitcoin ETF not trusted

In a 3-2 vote along partisan lines, the Van Eck Bitcoin Trust was disapproved (PDF) by the Securities Exchange Commission (SEC) according to the Commission’s website.

In their detailed, joint dissenting statement, Republican Commissioners Hester Peirce and Mark Uyeda conclude, “Because we believe that spot bitcoin ETP [exchange-traded product] should be subject to the same standards the Commission has used for every other type of commodity-based ETP and because we believe the poorly designed test being used here is not fit for purpose and will inhibit innovation—and thereby harm investors—in our markets, we dissent.” Read this detailed, nuanced dissent.

Tip: Footnote #3 of the dissent “…there appear to be no active spot bitcoin ETP filings currently before the Commission, perhaps reflecting the market’s reasonable conclusion that this Commission will not approve a spot bitcoin ETP, at least not until the SEC has regulatory authority over spot bitcoin markets…” Has the crypto ETF industry given up, or is it waiting for the Grayscale-SEC Bitcoin ETF trial to resolve itself?


On Friday, Senator Elizabeth Warren (D, MA) gave her support to recent action taken by the Public Company Accounting Oversight Board (PCAOB) calling into question “proof of reserve reports” by crypto companies. “Senator Ron Wyden  (D, OR) and I called on the PCAOB to hold auditors accountable for sham crypto audits and I’m glad they’re taking this step to protect investors…. But let’s be clear: there’s more PCAOB needs to do so consumers aren’t left holding the bag when shady crypto firms collapse,” tweeted Senator Warren.

Tip: Investor Advisory: Exercise Caution With Third-Party Verification/Proof of Reserve Reports – PCAOB

Rep. Gottheimer on stablecoins

In a Q&A on Capitol Account, Rep. Josh Gottheimer (D, NJ), a member of the House Financial Services Committee, provides hope to the bipartisan pro-crypto supporters saying, “You have to deal with stablecoins because it’s very difficult to do more in the space without dealing with the basics.” He adds, “But the bottom line is we have to actually, as I’ve said for years, make it clear who the regulators are.” Read more.

Tip: Gottheimer is among at least 5 Members who introduced stablecoin-related legislation in the last Congress. See a discussion draft of Gottheimer’s Stablecoin Innovation and Protection Act released in Feb. 2022.

cops on the beat

On Friday, Digital Assets, FinTech and Inclusion Subcommittee Chair Rep. French Hill (R, AR) appeared on CNBC’s Squawk Box to provide an update on digital assets legislation. From the interview: “First, I think we have to protect investors in the United States. And that’s why I question the SEC’s position last year on FTX. There were many, may Americans who were duped and I didn’t see the cops on the beat…” See the interview.

crypto capital requirements

A new Congressional Research Service (CRS) report  – “Bank Capital Requirements: A Primer and Policy Issues” – looks at U.S. banks’ capital requirements. One section of the report titled, “Crypto and Capital Requirements“, notes that pending legislation may change everything but delves into what’s possible now.

An excerpt from page 33 reads, “Depending on what is permitted, banks could potentially hold crypto exposures with regulatory capital implications by, for example, accepting crypto as loan collateral, using stablecoins, or providing certain custodial services for crypto.” Download it (PDF).

Tip #1: Basel Committee on Banking Supervision Consults on Prudential Treatment of Cryptoasset Exposures – Moody’s Analytics, June 2022

Tip #2: From CRS: “Capital Markets: Overview and Selected Policy Issues in the 118th Congress.” Visit page 37 and the “Digital Assets” section for the state of play on digital assets legislation.  Download it (PDF).

give me regulation

Reviewing last Thursday’s Digital Assets Subcommittee hearing, Politico’s Morning Money reaches out to one of its witnesses, chief legal officer Paul Grewal of Coinbase, who seems optimistic post-hearing and says he’s looking to the House Financial Services Chair for help with setting the proper crypto regulation standards, “We’re confident whatever set of standards [HFS Chair Patrick McHenry (R, NC)] may propose are going to reflect not only market realities but the need to protect consumers and keep investors safe.Read more.

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