On Sunday, March 12th, the crypto market breathed a sigh of relief after U.S. Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg released a joint statement. Silicon Valley Bank (SVB), the 16th largest bank in the US with $175 billion in deposits, had been closed by Californian regulators and placed under the control of the FDIC on March 10th. The statement confirmed that all depositors of SVB and Signature Bank would be fully protected, and the resolution of the banks would not cause any losses to be borne by taxpayers. As a result of this news, the crypto market saw a surge in prices, particularly for dollar-backed stablecoins like $USDC, which had $3.3 billion of cash reserves at SVB. With the assurance that depositors would have access to their funds starting on March 13th, $USDC traded at around $0.9935 on Kraken.
The crypto market has always been heavily reliant on stablecoins like $USDC, which allow traders to hedge against volatility in other cryptocurrencies. The backing of a stablecoin with US dollars ensures it maintains its value and provides much-needed stability in the market. Since Circle, the company behind $USDC, had a significant amount of cash reserves at SVB, the announcement from the US Treasury Department that depositors would be made whole had a tremendous impact on $USDC’s value.
The crypto market’s stability is crucial not just for the cryptocurrency industry but also for the broader economy. Silicon Valley is home to some of the largest tech companies in the world, including Ripple, and the closure of SVB could have caused panic waves across the entire financial system. The FDIC’s decision to intervene and take over SVB signalled a willingness to act decisively to prevent systemic failures that could lead to further financial crises. The FDIC and US financial regulators have played a crucial role in building trust between traditional banking institutions and the rapidly evolving cryptocurrency market.
The joint statement from the US Treasury Department, Federal Reserve, and FDIC also laid out a roadmap for how the FDIC would resolve the issues caused by the collapse of these two banks without causing any further disruptions in the financial system. The statement made it clear that shareholders and certain unsecured debtholders would not be protected, and senior management would be removed. The FDIC promised that any losses to the Deposit Insurance Fund to support uninsured depositors would be recovered through a special assessment on banks, as required by law. The Federal Reserve Board also announced that it would make additional funding available to eligible depository institutions to help assure banks have the ability to meet their depositors’ needs.
The US regulators’ swift action demonstrates how seriously they are taking the potential risks posed by the rapid rise of the cryptocurrency market. By proactively intervening to resolve issues, regulators are sending a clear message to traditional banking institutions and cryptocurrency markets alike that they are committed to having stability in the financial system. Regulatory frameworks, combined with technological innovation, are the key ingredients that will lead to the continued growth and evolution of the cryptocurrency market.
In conclusion, the joint statement from the US Treasury Department, Federal Reserve, and FDIC regarding the silencing of Silicon Valley Bank and Signature Bank, is much welcome and provides enormous relief to the crypto market, especially dollar-backed stablecoins like $USDC. The regulators’ actions show that they are resolute in maintaining the stability of the financial system and are committed to preventing systemic failures that could lead to financial crises. By taking decisive action to resolve issues, regulators are creating an environment that will foster innovation while at the same time providing necessary checks and balances to ensure that risks are appropriately managed. The crypto industry must continue to work with regulators, and building strong relationships will be instrumental in shaping the future of the cryptocurrency market.
