In the past week, Silicon Valley Bank (SVB) experienced a sudden collapse which caused stablecoins to lose their peg, resulting in regulators from the US and UK preparing emergency plans. This has caused concerns among small businesses, venture capitalists, and other depositors who have funds trapped in the bank located in California.
On March 13, the President of the United States, Joe Biden, expressed his determination to ensure that those responsible for the collapse of Silicon Valley Bank will face full accountability. In a tweet, he mentioned that he would provide further details about this matter in an address that is scheduled for later on the same day.
On March 12, US federal regulators, including Federal Reserve Board Chair Jerome Powell, Treasury Secretary Janet Yellen, and FDIC Chairman Martin Gruenberg, announced measures to fully protect depositors at both Silicon Valley Bank and Signature Bank. Depositors will have access to their funds from March 13, and no losses will be borne by them.
The Federal Reserve Board also introduced a $25 billion Bank Term Funding Program to offer loans of up to one year to eligible depository institutions.
Elon Musk tweeted about being open to the idea of buying the bank, while the Biden administration is reportedly preparing material action.
On March 11, there were concerns about the spread of contagion in the DeFi community as large investors attempted to move their funds away from USDC.
MakerDAO, a DAI issuer, proposed an emergency plan to address its $3.1 billion exposure to USDC, and Curve Finance saw record-breaking trading of $7 billion. Regional banks were seen as particularly vulnerable to the effects of the collapse of SVB.
Meanwhile, the crypto industry was also affected, as Circle, which had $3.3 billion in SVB, saw its USDC stablecoin depeg and lose over 10 percent of its value. This caused a domino effect that affected other stablecoins such as DAI, USDD, and FRAX.
Circle announced that it would use its resources to cover the downfall caused by the SVB collapse, while venture capitalists and others expressed their support for SVB and willingness to continue working with the bank if it was purchased and recapitalized.
On March 10, the Bank of England announced that SVB UK would stop making payments or accepting deposits and would be placed into a "Bank Insolvency Procedure".
US depositors queued up to withdraw funds, and an unverified report stated that the FDIC would cover 95 percent of uninsured deposits, with 50 percent to be paid out the following week.
The California financial regulator appointed the Federal Deposit Insurance Corporation (FDIC) to act as the receiver and safeguard insured deposits. Nonetheless, the FDIC only covers up to $250k per institution, per depositor, and per ownership category.
Despite this protection, Silicon Valley Bank holds more than $5 billion from notable venture capital firms. The bank is among the top 20 largest banks in the US and offers financial services to crypto-friendly venture companies.
The writer is the founder at yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash