Crypto firms including Coinbase and Paxos, among others, are now staring at weeks of market rebalancing and volatility after two crypto-friendly lenders were forced to suspend operations in the U.S. over the weekend. These now defunct banks are Signature Bank and Silicon Valley Bank (SVB). US authorities intervened and shut down operations at both banks, citing risks to the US economy. Both lenders had to go out of business between March 10th and 12th – causing chaos in the international financial markets on Monday March 13th.
The demise of SVB and Signature Bank comes just days later silver gateanother crypto-friendly bank, decided to cease operations on March 9th collapse of FTX which rocked the global crypto industry last year.
A number of crypto company are now reclaiming large amounts of capital from these banks to keep their users’ confidence against the fear of financial loss quickly.
The signature bank crumble
Founded in 2001 and based in New York City, Signature Bank was ordered by US authorities to cease operations on March 12. Taking advantage of the risk factor to US financial stability, the United States Federal Deposit Insurance Corporation (FDIC) ordered the cash to crunched bank to pull the curtain on its operations effective immediately.
The United States Federal Deposit Insurance Corporation (FDIC), which has the power to oversee banks in the US, has decided to close Signature Bank to limit depositor outflows and prevent further bank runs. CoinTelegraph said in a report.
As of December 31, 2022, Signature Bank was estimated to have close to US$89 billion (roughly Rs.7,29,083 crore) in deposits, a significant portion of which was held by crypto companies.
Shortly after news of Signature’s closure broke, coin base announced that it held US$240 million (around Rs.1,966 crore) as corporate funds in Signature Bank.
stablecoin issuer paxos also held $250 million (around Rs. 2,048 billion) in Signature alongside the financially troubled crypto lender Celsius – who chose not to disclose the size of her account at the now-defunct bank.
Companies are now waiting to get custody of their funds back.
Collapse of the Silicon Valley Bank (SVB)
The SVB, struggling to stay afloat in the post-COVID-19 slowdown in financial markets, ran out of coffers throughout 2023 into March.
The bank caught the attention of the FDIC after it issued US$21 billion (about Rs.1,72,048 crore) in bonds at a loss of US$1.8 billion (about Rs.14,747 crore) on March 8 .) had sold to raise emergency funding.
Within 48 hours of SVB announcing it had sold some of its assets, frightened investors dumped their holdings from the bank, leading to its collapse.
Founded in 1983, SVB served a long list of wealthy IT companies. As of December 2022, the bank allegedly had total assets of $209 billion (approx.
His eventual shocking demise on March 10th will be reported as the biggest financial crisis since the housing market crash of 2008.
The aftermath and the plan for the future
in a (n official postthe US Federal Reserve determined that all depositors registered with these banks are protected from financial risk and that their funds tied to these lenders will be reimbursed.
“After consulting with the President, Secretary of State Yellen approved measures that will allow the FDIC to complete its resolution of Silicon Valley Bank in a manner that fully protects all depositors. Depositors will have access to all their money from Monday March 13th. We are also announcing a similar systemic risk exemption for Signature, which was closed today by its founding state body. The US banking system remains resilient and is on solid foundations,” the Federal Reserve said.
This announcement clawed back profits cryptocurrenciestaking the market valuation to US$1.03 trillion (about Rs84.07,967 crore) after falling to US$930 billion (about Rs76.39,468 crore) on March 10.
Despite the support the U.S. government has provided to clients of these banks, their fateful course of events has raised concerns among members of the crypto community.
Silvergate, Silicon Valley and Signature are all closed.
Depositors are being made sane, but there is basically no one left to bank crypto companies in the US.
– The wolf of all streets (@scottmelker) March 12, 2023
The closures of Silvergate, SVB and Signature create a huge gap in the market for crypto-friendly banking.
There are many banks that can take advantage of this opportunity without taking the same risks as these three.
The question is whether banking regulators will try to oppose this.
— Jake Chervinsky (@jchervinsky) March 12, 2023
The US Federal Reserve Board has also announced that it will provide financial support to eligible depository institutions to ensure banks can meet the needs of all of their depositors.
In the meantime, Rajeev ChandrasekharIndia’s Minister of State for Technology is set to meet with start-ups this week to assess the impact of those banks’ collapse on them amid growing concerns about how it would affect India’s start-up sector.
