Silicon Valley bank run and the 36-hour journey of the Federal Reserve's rescue

Events surrounding Silicon Valley Bank have moved quickly. Here is a breakdown of the major developments over three days.

The sudden and unstoppable collapse of Silicon Valley Bank (SVB) in the past three days has led to the decoupling of stablecoins, causing major regulators in the United States and the United Kingdom to prepare contingency plans, leaving small businesses, venture capitalists and other depositors whose funds are trapped in the California technology bank worried.

March 10: Silicon Valley Bank shut down by California regulators

Silicon Valley Bank (SVB) was shut down by California financial regulators on March 10 after the bank announced it was selling a large number of assets and stock to raise additional capital.

The California Department of Financial Protection and Innovation confirmed that Silicon Valley Bank was ordered to close, but did not specify the specific reason for the closure.

California regulators appointed the Federal Deposit Insurance Corporation (FDIC) as a receiver to protect insured deposits. However, the FDIC only provides up to $250,000 per depositor or institution and per ownership category. The bank holds more than $5 billion in funds from large venture capital firms. Silicon Valley Bank is one of the 20 largest banks in the United States and provides banking services to crypto-friendly venture capital firms such as Sequoia Capital and Andreessen Horowitz.

March 10: World reacts to banking crisis

The Bank of England (British central bank) said on March 10 that SVB UK will "cease to pay or receive deposits" as it intends to apply to the court to place SVB UK into "bank insolvency proceedings."

American depositors line up to withdraw their money. According to an unconfirmed report, the FDIC plans to cover 95% of uninsured SVB deposits, 50% of which will be paid out in the next week.

The bank’s collapse was swift, coming less than 48 hours after management disclosed it would need to raise $2.25 billion in equity to shore up operations. Its stock price subsequently plunged, falling more than 60% on March 9.

March 11: Crypto starts to feel the pain

Reports have emerged about the crypto industry’s exposure to the failed bank. Circle has $3.3 billion in SVB. A Circle spokesperson told Cointelegraph, “We will wait and see what impact the FDIC’s takeover of SVB has on depositors. In the meantime, Circle and USDC will continue to operate normally.”

(Circle's reserve composition as of March 9, 2023. Source: Circle )

Circle's USDC stablecoin depegged, losing more than 10% of its value. USDC's depegging caused a domino effect, also leading to the depegging of several stablecoins. DAI, USDD, and FRAX were all affected. Circle announced that it would use the company's "resources" to fill the funding gap caused by SVB's collapse.

(USDC is slowly recovering after decoupling from the U.S. dollar on March 11. Source: CoinMarketCap )

March 11: Panic spreads

The entire DeFi community was affected, with whale wallets trying to withdraw funds from USDC. DAI issuer MakerDAO issued an emergency proposal to reduce its $3.1 billion USDC exposure. Swap pool Curve Finance set a record of $7 billion in transactions on March 11. Contagion concerns quickly intensified, with dire warnings that regional banks were particularly dangerous. Meanwhile, venture capitalists and others rallied around SVB, saying they were willing to continue working with the bank if it was acquired and recapitalized.

March 12: Regulators act quickly

Regulators in the U.S. and the U.K. began taking action in response to SVB's collapse. U.S. Treasury Secretary Janet Yellen said in an interview that the Treasury was focused on the needs of depositors and would not bail out the bank. British Prime Minister Rishi Sunak said there were "immediate plans to ensure the short-term operational and cash flow needs of Silicon Valley Bank's U.K. customers."

The London bank has officially made a bid for SVB's UK branch.

Bloomberg reported that the FDIC opened the auction process for SVB on the evening of March 11. The bidding ended at 2 p.m. EST on March 12, according to The Wall Street Journal. Elon Musk tweeted that he was "open" to the idea of ​​acquiring the bank. The Biden administration in the United States is also reportedly ready to take "substantial action."

March 13: The Fed is prepared to respond to any liquidity pressure that may arise

The Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation said Silicon Valley Bank depositors will have access to all of their funds starting Monday, March 13.

The Federal Reserve announced that it will provide additional funds to eligible depository institutions to help ensure that banks have the ability to meet the needs of all depositors. This move will enhance the banking system's ability to protect deposits and ensure the continued supply of money and credit to the economy. The Federal Reserve is prepared to respond to any liquidity pressures that may arise.

The additional funding will be provided through the creation of a new Bank Term Funding Program (BTFP) to provide loans for up to one year to banks, savings associations, credit unions, and other eligible depository institutions against U.S. Treasury securities, agency debt, and mortgage-backed securities, as well as other eligible assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity for high-quality securities, eliminating the need for institutions to quickly sell these securities in times of stress.