Michael Bodley

Turns out that, at least for a time, stablecoin issuer Circle was reportedly the single largest asset-weighted customer of Silicon Valley Bank.&nbsp;



Silicon Valley Bank (SVB) collapsed earlier this year, with the venture capital banking favorite going down as one of a series of overextended US banks that met their demise amid mounting withdrawal pressure.&nbsp;



Citing a Freedom of Information Act (FOIA) request, Bloomberg <a href="https://www.bloomberg.com/news/articles/2023-06-23/fdic-insured-billions-in-deposits-for-sequoia-other-top-svb-customers?sref=vuYGislZ">reported</a> on Friday that Circle was the top depositor at SVB. Circle does business as Circle Internet Financial. 



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">WHOA. The FDIC accidentally posted an un-redacted document showing that the big VC firm Sequoia had $1 billion on deposit at SVB when it collapsed <a href="https://t.co/hCbcHZ0yev">https://t.co/hCbcHZ0yev</a> <a href="https://t.co/Ys1qbHnvDr">pic.twitter.com/Ys1qbHnvDr</a>&mdash; Joe Weisenthal (@TheStalwart) <a href="https://twitter.com/TheStalwart/status/1672219482129854464?ref_src=twsrc%5Etfw">June 23, 2023</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Bloomberg reported that the Federal Deposit Insurance Corp. told the publication that the document in question was inadvertently released in its unredacted form.



An FDIC spokesperson declined to comment to Blockworks, and a spokesperson for Circle did not immediately reply to a request for comment.&nbsp;



Circle held about $3.3 billion at SVB around the time of the bank’s collapse in March, and the <a href="https://blockworks.co/news/circle-stand-behind-usdc">USDC issuer then pledged to “stand behind USDC.”</a> The document obtained by Bloomberg states the Circle held the top spot in a ranking of both the top 10 depositors and the top 10 accounts — suggesting that Circle maintained more than one account at SBV.&nbsp;



The FDIC stepped in to insure all SBV deposits after the bank went under, not just deposits under the federal agency’s typical $250,000 threshold.&nbsp;



Circle’s USDC stablecoin had depegged from its one-to-one dollar mooring when SBV headed for bankruptcy, raising crypto industry questions as to the extent of the damage from ties to SBV and other banks that went on to fail, including Signature and Silvergate.&nbsp;



Circle in the aftermath started doing due diligence on and tapping a number of new prospective banking partners, including <a href="https://blockworks.co/news/new-circle-bank-after-usdc-depeg">striking an agreement with Cross River Bank</a>, to facilitate the usage and transfer of USDC and the company’s other products.&nbsp;



Read more: <a href="https://blockworks.co/news/who-will-bank-crypto">After Bank Failures, Where Will Crypto Firms Turn?</a>



Dollar-pegged <a href="https://blockworks.co/news/stablecoins-peg-usdc-all-time-low">stablecoins booked a relatively quick recovery</a> after their initial demooring. Ample is crucial to ensuring stablecoins adhere closely to the price of the asset they are pegged against.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

Circle was SVB’s biggest client: report

Casey Wagner

The Federal Reserve had insufficient regulatory standards for recently closed Silicon Valley Bank, a new report finds.&nbsp;



Fed Vice Chair for Supervision Michael Barr led the investigation into how Silicon Valley failed and the role the central bank played.&nbsp;



“The supervision of SVB did not work with sufficient force and urgency, and contagion from the firm’s failure posed systemic consequences not contemplated by the Federal Reserve’s tailoring framework,” Barr wrote in the <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20230428a.htm">report</a>, published Friday.&nbsp;



At the time of its collapse, SVB had 31 open supervisory findings, which the Fed files when a bank has concerns requiring federal government attention. Other banks under the Fed’s purview had around 10 supervisory findings, the report added.&nbsp;



The Fed noted risks in SVB’s liquidity, capital, management and asset quality, among other things, every year between 2020 and 2022 but did not file additional supervisory findings until November 2022. In this finding, the central bank announced plans to downgrade SVB’s rating related to interest rate risk, but Silicon Valley failed before the downgrade was made.&nbsp;



Supervisory findings on the whole have been declining since 2014, the Fed notes in a <a href="https://www.federalreserve.gov/publications/files/202205-supervision-and-regulation-report.pdf">separate report</a>.&nbsp;



The report criticizes former Fed Supervision head Randal Quarles, appointed under President Trump, for a “cultural shift” that led to more relaxed oversight over SVB and other institutions.&nbsp;



Going forward, Barr says central bankers will work toward a “stronger regulatory framework.”&nbsp;



“With respect to capital, we are going to evaluate how to improve our capital requirements in light of lessons learned from SVB,” Barr wrote in the report. “We are also going to evaluate how we supervise and regulate liquidity risk, starting with the risks of uninsured deposits.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.

Supervision Board Says Fed Dropped the Ball on SVB Oversight

Shalini Nagarajan

The Congressional Research Service found that crypto did have a role to play in the failure of Silvergate, Silicon Valley and Signature Bank, but only an indirect one based on risk perception.



The non-partisan agency, which acts as a trusted resource for members of Congress, published a report on Tuesday, which showed that the banks had limited exposure to high-profile crypto company failures. However, it disclosed that more than 90% of Silvergate’s deposits came from crypto clients.



The financial world truly saw some March Madness when Silvergate announced it would be <a href="https://blockworks.co/news/silvergate-intends-wind-down-operations">winding down</a>, Silicon Valley Bank <a href="https://blockworks.co/news/silicon-valley-bank-meltdown-has-little-to-do-with-crypto">failed suddenly</a>, leaving the investment community reeling, and the smaller Signature Bank, was <a href="https://blockworks.co/news/signature-possession-nothing-to-do-with-crypto">shuttered by regulators</a>.&nbsp;



These banks were the victims of a deposit run, which means too many customers withdrew their funds and the banks couldn’t keep up, but their closure <a href="https://blockworks.co/news/chokepoint-2-0-efforts-effective">has been blamed</a> on their coziness with the crypto industry — <a href="https://blockworks.co/news/house-grapples-with-stablecoins">speciously</a> according to congressional testimony.



These were the highlights from the <a href="https://crsreports.congress.gov/product/pdf/IN/IN12148" target="_blank" rel="noreferrer noopener">Congressional Research report</a>:



<ul>
<li>Silicon Valley Bank, Silvergate and Signature were all in on the crypto action, providing services to firms in the industry.</li>



<li>Among them, Silvergate was king, counting more than 90% of its deposits coming from crypto clients. Meanwhile, Signature Bank had only 20% of deposits in digital assets. SVB claimed to have “minimal exposure,” but Circle’s announcement that it held $3.3 billion of stablecoin reserves at SVB caused a bit of a stir when USDC <a href="https://blockworks.co/news/new-circle-bank-after-usdc-depeg">temporarily depegged</a> from the US dollar.</li>



<li>Silvergate offered bitcoin-collateralized loans to industry participants, holding $302 million in bitcoin-collateralized loans at the end of Sept. 2022.</li>



<li>Both Silvergate and Signature offered payment networks that facilitate real-time payments among crypto clients</li>



<li>Banks had limited exposure to high-profile crypto company failures, including Celsius and FTX.</li>



<li>Silvergate had less than 10% exposure to FTX, while Celsius’ deposits at Signature were an inconsequential 0.1%.</li>



<li>Crypto firm withdrawals during the bank run were proportional to the banks’ total deposits.</li>



<li>The crypto market downturn caused the banks to lose more deposits as centralized crypto platforms and stablecoin issuers experienced redemptions</li>



<li>Banks had to sell what they thought were safe and sound investments at a loss to meet withdrawal demand.</li>



<li>In conclusion, withdrawals of crypto deposits forced banks to sell other assets at a loss.</li>
</ul>



The report concluded that the recent failures of crypto-friendly banks have fuelled debate about whether they are managing the liquidity risks of the market well.&nbsp;



While banking regulators previously clarified that banks were “neither prohibited nor discouraged” from banking crypto, banks may be reticent to bank the industry,” Paul Tierno, analyst in financial economics at the Congressional Research Service wrote.&nbsp;



“Hesitancy to bank crypto may also highlight broader uncertainty regarding what constitutes appropriate practices in the absence of a more robust regulatory framework.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.