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Reuters Sat March 11, 2023
Stablecoin USD Coin (USDC) lost its dollar peg and slumped to an all-time low on Saturday after Circle, the US firm behind the coin, revealed some of the reserves backing it were held at Silicon Valley Bank.
Circle has $3.3 billion of its $40 billion of USDC reserves at collapsed lender Silicon Valley Bank, the company said in a tweet Friday.
The coin broke its 1:1 dollar peg and fell as low as $0.88 early Saturday, according to market tracker CoinGecko. It recovered slightly to trade around $0.90.
Silicon Valley Bank collapsed on Friday in the largest US bank failure since the 2008 financial crisis, roiling global markets and stranding billions of dollars belonging to companies and investors.
These companies held money at Silicon Valley Bank and aren't sure if they'll recover the funds
Circle said in a tweet Friday it and USDC “continue to operate normally” while the firm waits for clarity on what will happen to Silicon Valley Bank depositors.
Circle did not immediately respond to a request for comment about the dollar peg, sent outside of US working hours.
Stablecoins are cryptocurrencies designed to maintain a constant exchange rate with “fiat” currencies – those backed by a central government rather than a physical commodity such as gold – for example through a 1:1 US dollar peg.
Used in cryptocurrency trading, they have surged in value in recent years. USDC is the second-biggest stablecoin with a market cap of $37 billion. The largest, Tether, has a market cap of $72 billion, according to CoinGecko.
USDC’s price usually holds close to $1, making Saturday’s drop unprecedented. According to CoinGecko data, its previous all-time low was around $0.97 in 2018, though in 2022 it fell just below $0.99 when cryptocurrency markets were roiled by the collapse of crypto hedge fund Three Arrows Capital.
How does a bank collapse in 48 hours? A timeline of the SVB fall
Traders have been on guard this week for signs of contagion in the financial sector and beyond from troubles for Silicon Valley Bank and crypto-focused Silvergate (SI), which this week disclosed plans to wind down operations and voluntarily liquidate.
Boston-based Circle said last week it had moved a “small percentage” of USDC reserve deposits held at Silvergate to its other banking partners.
The chief executive of cryptocurrency exchange Binance said in a tweet on Friday it had no exposure to Silicon Valley Bank, as did Tether Chief Executive Paolo Ardoino.
Stablecoin issuer Paxos and crypto exchange Gemini also tweeted they do not have relationships with the bank.
Silicon Valley Bank collapse: Tech firm job and pay fears as Bank of England moves to shut down US lender
Hundreds of UK and European customers, many of them small technology start-ups, have rushed to take their money out of the UK bank, according to emails seen by i
The UK arm of Silicon Valley Bank is set to be declared insolvent by the Bank of England after its US parent company failed in one of the biggest modern banking collapses.
Bank of England (BoE) regulators said the UK-based subsidary of the California-headquartered Silicon Valley Bank (SVB) will be put into insolvency on Sunday.
The move follows a decision by US regulators to step in and control its parent company.
The US bank, the 16th largest in the country with more than $208bn in assets at the start of the year, serves many of the world’s most powerful technology investors and thousands of tech companies around the world.
It collapsed on Friday becoming one of the largest lenders to fail since the 2008 global financial crisis.
US officials moved in to take over after what was effectively a run on the bank. Depositors rushed to withdraw their money amid fears SVB would not have sufficient funds to meet demands.
Its collapse has sent shockwaves across the banking and technology industries, hitting the shares of hundreds of thousands of banks and technology companies.
SVB UK attempted to reassure its customers not to panic as it had a separate balance sheet and was operating normally. In a statement, its chief executive Erin Platts, said: “Silicon Valley Bank UK has been an independent subsidiary since August 2022 with a separate balance sheet to the SVB Financial Group and an independent UK Board of directors.”
But hundreds of UK and European customers, many of them small technology start-ups, sought to get their money out of the UK bank regardless, according to emails seen by i.
Some requested customers not deposit money in their SVB accounts as they scrambled to set up accounts with alternative lenders. Other technology start-ups have sought help and advice on how to meet bills and pay staff.
In the US, a payroll service provider Rippling notified customers that some wage processes had stalled because SVB helped handle its payments. It said it had switched to another bank but many pay cheques drawing on SVB accounts had already been sent out.
It later emerged that SVB UK had applied for £1.8bn in short-term emergency funding from the Bank of England through the Bank’s discount window facility which offers help to banks if they have adequate collateral, the Financial Times reported.
Late on Friday, after discussions with SVB, the Bank of England announced it would be placing SVB UK into insolvency proceedings.
The Bank of England said Silicon Valley Bank UK would stop making payments or accepting deposits in the interim and the move would allow individual depositors to be paid up to £85,000 or £170,000 for joint account holders, from the UK’s deposit insurance scheme.
It stressed there was no wider, systemic risk to other banks. “SVBUK has a limited presence in the UK and no critical functions supporting the financial system,” the Bank said. “In the interim, the firm will stop making payments or accepting deposits,” its statement said.
US Treasury Secretary Janet Yellen also tried to reassure investors there was not a wider threat to the banking and technology sectors.
After meeting with Treasury officials and regulators to discuss the fallout from SVB’s collapse, a Treasury Department statement said: “Secretary Yellen expressed full confidence in banking regulators to take appropriate actions in response and noted that the banking system remains resilient and regulators have effective tools to address this type of event,” the statement said.
SVB, which had until recently more than $174bn in deposits and an A1 credit rating, began to struggle when lots of its clients began withdrawing money at a time when the wider tech sector began suffering as part of the wider economic downturn. Tens of thousands of tech workers have been laid off.
SVB said earlier this week, in order to meet its liabilities, it had to sell part of its bond deposits at a loss of $1.8bn. Its announcement startled clients and started to withdraw even more money from the bank. On Thursday customers tried to withdraw $42bn-almost a quarter of the bank’s total deposits. Queues of anxious customers were seen outside branches in California.
The bank’s share price fell by 60 per cent as a result. Trading in its shares were stopped altogether on Friday ahead of US regulators stepping in. Its directors said it was dropping a plan to sell $2.25bn new shares and instead find a buyer for the entire bank before regulators stepped in.
It was revealed that SVB’s chief executive Greg Becker legally sold $3.6m worth of bank shares less than two weeks before the firm disclosed extensive losses that led to its failure.
Neither SVB, nor Mr Becker, responded to requests as to whether he was aware of the bank’s plans to raise additional capital ahead of the sale.
Bank of England seeks to launch insolvency procedure
By Rachel Mortimer
The Bank of England plans to place the UK arm of beleaguered Silicon Valley Bank into insolvency tomorrow, plunging British tech startups into a funding crisis.
It comes as regulators in the US intervened to shut down SVB after its customers, largely tech companies, scrambled to withdraw deposits from the lender. The bank had attempted to plug its balance sheet and raise $2.25bn (£1.87bn) following losses on investments triggered by higher interest rates.
On Friday night the Bank of England said it intended to begin insolvency procedures for Silicon Valley Bank UK (SVB UK). A statement on the lender’s website said this would begin on Sunday evening, in the absence of an “intervening event”.
Placing the bank in insolvency would allow eligible customers to claim up to £85,000 from the UK’s financial lifeboat body, the Financial Services Compensation Scheme, or up to £170,000 for joint accounts.
SVB UK’s other assets and liabilities will be managed by liquidators and assets distributed to its creditors.
The Bank of England said: “SVB UK has a limited presence in the UK and no critical functions supporting the financial system. In the interim, the firm will stop making payments or accepting deposits.”
This morning the Coalition for a Digital Economy (Coadec) said the collapse could have a “significant impact on the UK’s tech startup ecosystem” with a large number of investors having “significant exposure” to the lender.
SVB was forced to raise funds this week due to losses on investments it made when interest rates were at rock bottom. On Friday multiple venture capital firms advised start-ups they have invested in to withdraw cash.
A statement from SVB UK said: "We are determined to work on the behalf of our clients and are proud of our employees in their engagement with you. If clients have any questions please get in touch with us and we will try our best to answer any and all of your queries."
British tech firms warn of insolvency as UK arm of SVB heads for bankruptcy
Letter from companies to Chancellor Jeremy Hunt says some risk insolvency within days unless a rescue is formulated
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Silicon Valley Bank headquarters in Santa Clara, California, US. Its troubles are being felt across the Atlantic. Bloomberg
Matthew Davies
London
Mar 11, 2023
About 210 start-up company founders and leaders in the UK have signed a letter to Chancellor Jeremy Hunt, warning that they could face insolvency after the collapse of Silicon Valley Bank in the United States and the subsequent bankruptcy of its UK operation.
“The majority of us as tech founders are running numbers to see if we are potentially technically insolvent”, the letter said, according to sources.
The signatories said they employ more than 10,000 people and have raised venture funding totalling £3.5 billon.
“The majority of the most exciting and dynamic tech businesses bank with SVB and have no or limited diversity in where their deposits are held,” the letter said, according to the FT.
Calling on Mr Hunt to intervene, the letter also said: “The loss of deposits has the potential to cripple the sector and set the ecosystem back 20 years,” according to Bloomberg.
“Many businesses will be sent into involuntary liquidation overnight.”
Cashflow concerns
Mr Hunt has spoken to the governor of the Bank of England about the collapse of SVB and there are talks with some British high-tech companies that might be affected, according to the UK Treasury.
Treasury officials and those from the Bank of England are working together, a statement from the Treasury said, adding that a junior finance minister will discuss the concerns of some UK tech firms with industry representatives on Saturday.
“The government recognises that tech sector companies are often not cashflow positive as they grow, and that they rely on cash on deposits to cover their day-to-day costs,” the statement said.
Silicon Valley Bank became the biggest US lender to fail in more than a decade on Friday, following an unsuccessful attempt to raise capital and a run on the bank as depositors tried to withdraw funds.
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The Bank of England in London said that eligible depositors in the British arm of SVB would be paid by the UK’s deposit-insurance fund. EPA
Meanwhile, eligible depositors in the British arm of SVB would be paid by the UK’s deposit-insurance fund, the Bank of England said on Friday.
Deposits are insured up to £85,000 ($102,000) or £170,000 for joint accounts, the Bank of England said.
“SVB UK has a limited presence in the UK and no critical functions supporting the financial system,” the Bank said.
“In the interim, the firm will stop making payments or accepting deposits.”
Sky News reported on Saturday that the Bank of London, which describes itself as “a leading-edge technology company and the world's first purpose-built global clearing, agency and transaction bank”, is considering a rescue bid for the UK arm of SVB.
The Bank of London did not comment on the rumour.
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