Bailout: Is a term that translates as: To help out. The American government used a “bailout” to provide collateral and ease the situation around the banking crisis in 2008/2009. In the course of the now burgeoning crisis of the banks, those responsible spoke out strictly against a bailout, which, by the way, is prohibited by law in the EU anyway.
Thought of the week
Digital Asset News
Because US$3.3 billion was missing from USDC reserves due to the forced closure of Silicon Valley Bank, Circle’s stablecoin slipped below US$1.
Almost immediately after Circle, the issuer of the stablecoin USD Coin
USDC, announced that it had been unable to derecognise assets totalling US$3.3 billion out of a total of US$40 billion at Silicon Valley Bank (SVB), which was suddenly hit by a forced closure, for the time being, the price of the company’s stablecoin slipped below its target of US$1.
On 9 March, Circle had ordered a corresponding debit of the funds in question from SVB after the bank was unexpectedly forced to close by the Californian financial regulator. In the meantime, Circle now reports that the debit could not be fully carried out before the closure and that 3.3 billion US dollars from the USDC reserves will remain with the SVB for the time being, but these funds are either expected today, Monday, or will be covered by the aforementioned “rescue packages” for investors by the American government, causing the markets to ease again quickly and strongly, at least for the moment.
The SVB (Silicon Valley Bank), which is also closely interwoven with the crypto industry via detours, must now officially close its doors. The Silicon Valley Bank, one of the most important banks for companies financed by venture capital, was taken out of operation by the Californian financial supervisory authority on 10 March. This now marks the failure of the first bank insured by the state’s deposit insurance fund, the Federal Deposit Insurance Corporation (FDIC), in 2023.
The California Department of Financial Protection and Innovation has accordingly confirmed that it has ordered the closure of Silicon Valley Bank, but does not give a specific reason. In doing so, the Californian authority has designated the FDIC as the recipient of the bank’s remaining deposits. Investors will “have access to their deposits again no later than Monday morning, 13 March 2023”, according to the official notice. The agency further explains that investors whose deposits are not covered by the collateral protection will receive “a certificate equal to the amount of their unprotected funds” and will be entitled to receive dividends from the FDIC’s sales of Silicon Valley Bank’s assets.
In other words, this means that client funds are secured over “newly” issued money. This could lead to a change in the Fed’s monetary policy sooner than planned and expected.
The US government released the following announcement on Sunday, in the wake of the worsening banking crisis:
To support American businesses and households, the Federal Reserve announced on Sunday that it will provide additional funding to eligible depository institutions to ensure that banks are able to meet the needs of all their depositors. This action will strengthen the banking system’s ability to secure deposits and ensure the continued supply of money and credit to the economy.
The Federal Reserve is prepared to meet any liquidity pressures that may arise.
The additional funds will be made available through the creation of a new Bank Term Funding Program (BTFP), which will offer loans of up to one year to banks, savings associations, credit unions, and other eligible deposit-taking institutions, with U.S. government bonds, agency debt securities, and mortgage-backed securities and other qualifying assets as collateral. These assets are valued at par. The BTFP provides an additional source of liquidity for high quality securities so that an institution does not have to sell these securities quickly in times of stress.
With the approval of the Treasury Secretary, the Treasury will provide up to $25 billion from the Exchange Stabilisation Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that a drawdown of these funds will be necessary.
As usual, we are also providing detailed videos for those who want to delve deeper into the subject.