Everything changes overnight: The Fed rescues the USDC crisis, crypto-friendly bank Signature is shut down

As the Federal Reserve took action, the market underwent earth-shaking changes.

The Treasury Department, the Federal Reserve, and the FDIC issued a joint statement.

full text:

Today, we are taking decisive action to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital role, protecting deposits and providing access to credit to households and businesses in a way that promotes strong and sustainable economic growth.

After receiving recommendations from the FDIC and the Federal Reserve Board and consulting with the President, Yellen approved actions that will allow the FDIC to complete its resolution of Silicon Valley Bank in Santa Clara, California, in a manner that fully protects all depositors. Beginning Monday, March 13, depositors will have access to all of their money. No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers.

We are also announcing a similar systemic risk exception for Signature Bank in New York, which was closed today by its state charter. All depositors of that institution will be fully recovered. As with the resolution of Silicon Valley Bank, taxpayers will not incur any losses.

Shareholders and certain unsecured debtors will not be protected. Senior executives have also been removed from their posts. Any losses incurred by the Deposit Insurance Fund in supporting uninsured depositors will be covered by special assessments on the banks, as required by law.

Finally, the Federal Reserve announced Sunday that it will provide additional funding to eligible depository institutions to help ensure banks have the ability to meet the needs of all depositors.

The U.S. banking system remains resilient and on solid footing, thanks in large part to reforms enacted after the financial crisis to ensure better protection for the banking sector. These reforms, combined with today's actions, demonstrate our commitment to taking the necessary steps to ensure depositors' savings are safe.

Read the original article:

https://www.federalreserve.gov/newsevents/pressreleases/monetary20230312b.htm

Subsequently, USDC has restored its peg to 0.99, and the USDC crisis seems to have been resolved.

Circle statement:

We are pleased to see the U.S. government and financial regulators take critical steps to mitigate the risks posed by parts of the banking system. 100% of deposits from SVB are safe and secure and will be open for business tomorrow. 100% of USDC reserves are also safe and secure and we will complete the transfer of the remaining SVB cash to BNY Mellon. As previously stated, liquidity operations for USDC will resume tomorrow morning when the banks open. With the announcement tonight of the closure of Signature Bank, we will not be able to process minting and redemptions through SigNet and will rely on BNY Mellon for settlement. We will introduce a new transaction banking partner with automated minting and redemption capabilities as soon as tomorrow. We are committed to establishing robust and automated USDC settlement and reserve operations with the highest quality and transparency. We have long advocated for full-reserve digital currency banking to isolate the base layer of our internet money and payment system from fractional reserve banking risks. In fact, the Payments Stablecoin Act remains a very active pursuit by Congress and would provide in law a system where stablecoin funds would be held in cash at the Federal Reserve and in short-term Treasury bills. We need this law now more than ever if we want a truly safe financial system.

Coinbase issued a statement saying that despite the recent turmoil we have seen in the traditional banking industry, Coinbase continues to operate as usual. At Coinbase, all customer funds continue to be safe and accessible, including USDC conversions which will resume on Monday. All customer cash at the bank continues to be protected by FDIC pass-through insurance. Due to the FDIC's suspension of trading in Signature, we are currently facilitating cash transactions for all customers with other banking partners.

CZ expressed the critical view: Once you do a bailout, you are caught between a rock and a hard place. You “protect consumers” by diluting all citizens. If you do a bailout, there is zero incentive for banks to manage risk. When you fail, you get bailed out. Bailouts encourage taking more and more risk, which requires more bailouts.

American industry professionals are generally worried about the closure of SIGNATURE.

Frank Chaparro, editor-in-chief of The Block , said that with the closure of the SIGNATURE BANK crypto-friendly bank, Crypto's capital markets are basically back to the pre-2014 period. Any newly established company has no chance of obtaining a banking relationship. In many ways, cryptocurrencies have officially become unbanked. This will make the banking situation for cryptocurrency companies extremely difficult and absolutely brutal. According to Bloomberg, a person familiar with the company's operations said that the decision to put Signature into bankruptcy management was a surprise to its managers, who found out about the news shortly before the announcement. The bank faced a large outflow of deposits on Friday, but the situation had stabilized by Sunday. The person asked not to be named to discuss private matters.

In addition, the subsequent macro trends also confused the outside world.

After this round of rescue, the CME FedWatch Tool shows that the forecast of the Federal Reserve FOMC raising interest rates by 50bps in 9 days has dropped from 40% one day ago to 17.4%; the probability of raising interest rates by 25bps is 82.6%. On Tuesday, the United States will release the February CPI, which will completely determine the extent of this rate hike.