Silicon Valley Bank started to lose money when its clients, mostly IT firms that were having trouble obtaining funding and needed cash, started withdrawing their accounts. The greatest failure of a U.S. financial institution since the height of the financial crisis resulted from the bank’s need to sell bonds at a loss to pay the withdrawals.
Yellen reassures owners and investors
Both SVB and Signature were identified by the Treasury Department as systemic risks, granting it the power to dissolve both companies in a manner that “completely safeguards all depositors,” according to the Treasury Department. Due to the $250,000 restriction on guaranteed deposits, many depositors were left uninsured and will now be compensated through the FDIC’s deposit insurance fund.
Beginning on Monday, anyone who has money in the bank will have complete access.
In an appearance with CBS’s “Face the Nation” on Sunday, Janet Yellen reiterated reassurance that the US banking system is secure, well-capitalized, and resilient.
She said officials are “trying to handle this problem in a timely way” when asked whether answers would be given before markets open in Asia on Monday.
“During the financial crisis there were investors and owners of systemic large banks that were bailed out,” she said. “And we’re certainly not looking — and 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 we’re focused on trying to meet their needs.”
The demise of the bank was attributed by Yellen more to high-interest rates than to problems in the technology sector. She said that this bank’s issues weren’t primarily caused by issues in the IT industry.
At the end of 2022, SVB, a little-known American bank that specialized in funding startups, had $209 billion in assets and around $175.4 billion in deposits, making it the 16th biggest US bank by assets.
The collapse of SVB not only symbolizes the biggest bank failure since Washington Mutual in 2008 but also the second-worst failure of a retail bank in American history.
Circle Guarantees to Cover the $3.3 Billion Held at Silicon Valley Bank.
Cryptocurrency USDC, which was introduced in 2018 as a “stablecoin” that was pegged to a currency supported by a central bank, had a steep decline as its developer, Circle, revealed it now owns $3.3 billion at SVB and has dropped its peg to the dollar.
After slipping below its dollar peg following the news on Saturday, March 11, Circle’s USDC stablecoin rose as a result. The collapse of Silicon Valley Bank (SVB), the largest banking failure since the 2008 financial crisis, continues to have an impact.
The USDC economy is experiencing a period of increased uncertainty, according to Circle’s blog. “We are still dedicated to open and honest communication.”
Because USDC is still “redeemable 1 for 1 with the U.S. Dollar,” the firm stated that “liquidity operations” will resume as soon as U.S. banks reopen on Monday, March 13. It also stated that its staff was prepared to manage a large volume.
Circle stated that although the $3.3 billion had been transferred to other banks as of Thursday (March 9), the transactions had not yet been finalized as of Friday’s business closure. To obtain this money, the firm stated that it was “assured in the FDIC’s supervision of the SVB issue.”
The FDIC gives IOUs (also known as receivership certificates) and advanced dividends to deposit holders, so it’s also likely that SVB won’t refund 100% of deposits and that any recovery may take some time, according to Circle.
Circle stated that if that occurs, it will “stand behind USDC and pay any gap using business resources, engaging external capital if necessary.”