USDC, Silicon Valley Bank, and Signature Bank - The Latest Insights

Jeremy Allaire, co-founder and CEO of Circle, offered an update to the community about USDC’s situation following these developments. USDC after the recent depeg In response to the recent regulatory news and banking shifts, Allaire assured that USDC deposits and reserves remain secure.

USDC Monday update

He recognized the actions taken by the US government and financial regulators aimed at reducing the risks tied to the fractional banking system. Allaire confirmed that every dollar deposited with Silicon Valley Bank (SVB) is safe and will be accessible when banks open tomorrow. Moreover, he stated that all USDC reserves are also safe, and Circle plans to complete its transfer of remaining SVB funds to BNY Mellon.

In his updates, Allaire also discussed liquidity operations for USDC, highlighting that these would begin again once banks open tomorrow morning. However, he noted that they won’t be able to process minting and redemption through SigNet. Instead, settlements will go through BNY Mellon. Circle is actively bringing on board a new transaction banking partner to automate the minting and redemption process, with the possibility of this happening as early as tomorrow. resume We were encouraged to observe the US government and financial regulators taking vital steps to address risks stemming from the fractional banking system. closure of Signature Bank , Circle The full amount of deposits at SVB is secure and will be available when banks open tomorrow.

Update thread on USDC

Circle is dedicated to developing resilient and fully automated USDC settlement and reserve operations, ensuring the highest standards of quality and transparency. Allaire hinted that he would soon share a more extensive thread, reflecting on the events of the past few weeks.

Circle has consistently advocated for a model of full-reserve digital currency banking, aiming to protect the foundational aspects of internet-based money and payment systems from the risks of fractional reserve banking. Allaire pointed to the Payment Stablecoin Act, a legislative initiative designed to solidify a framework in which stablecoin funds must be held either in cash at the Federal Reserve or in short-term Treasury Bills.

— Jeremy Allaire (@jerallaire) March 12, 2023

About Circle

Ultimately, Allaire’s tweet thread brings a much-needed sense of reassurance to the community amidst recent regulatory changes and banking events. Circle's pledge to uphold transparency and foster a secure financial ecosystem is commendable, and it will be intriguing to see how they navigate the continuously evolving landscape of stablecoins.

Meanwhile, there are also intriguing perspectives regarding regulation and the future of USDC.

Alfonso Peccatiello, founder of TheMacroCompass.com and host of Blockworks Macro, shared his insights on the significant announcement made by the Federal Reserve and US policymakers regarding Silicon Valley Bank (SVB) and Signature Bank. In his tweets, Peccatiello emphasized the crucial components of the announcement and expressed his views. The announcement from the Fed and US policymakers was monumental. and regulation.

Different point of view on USDC

The essence: every depositor of SVB and Signature Bank will be made whole, and a new facility has been created to ensure liquidity for distressed banks.

Peccatiello asserted that the announcement guaranteed that all SVB and Signature Bank depositors would be compensated, although shareholders and certain unsecured creditors would not receive the same treatment, and senior management had been dismissed. He added that uninsured depositors could access their full funds starting Monday, March 13.

He further elaborated that the Fed had introduced a novel facility called the Bank Funding Term Program, which aimed to provide liquidity support to banks experiencing distress. The objective was to offer banks a better option than liquidating their bond holdings when they needed to sourced cash to meet deposit withdrawals.

Peccatiello viewed the establishment of this new facility as a positive development from the Fed and US policymakers. He clarified that funding would be available at 1-year OIS (Overnight Index Swap), which is aligned with market-implied Federal Funds rates, plus a minimal spread of 10 basis points.

A short thread.

1/

— Alf (@MacroAlf) March 12, 2023

In essence, this initiative would assure a year of guaranteed liquidity at the Fed Funds rate plus 10 bps in exchange for collateral valued at par. He noted that it offered a favorable option for banks in distress, despite the fact they would ultimately pay 4-5% for this funding, which was significantly better than facing collapse during a regional banking crisis.

In summary, Peccatiello shared his perspective on the new financial package, pointing out that although it didn’t entail a bailout for shareholders, it did provide some level of compensation for uninsured depositors. He commended the facility for making reasonably priced funding accessible to troubled banks and, while they might end up paying more, it represented a far better alternative compared to going bankrupt.

Fed and US

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