According to the external press review, USDC was able to return quickly to the vicinity of $1 following the collapse of the Silicon Valley Bank in March 2023, not as a special arrangement in the United States Government to stabilize the encrypted market, but as a special arrangement in the bank ' s disposal, which unexpectedly covered the reserves held at the Bank by Circle.
At that time, Circle had $3.3 billion USDC reserves at Silicon Valley Bank (SVB), which represented about 8 per cent of the total reserves. After the news was revealed, the market was quick to fear that the money might be damaged, and USDC fell to about US$ 0.87 at one time, and foreclosure pressure was quickly transmitted to the DeFi market.
It's a banking emergency.
According to the article, the United States was using the “systemic risk exception”. In accordance with the usual rules, the Federal Deposit Insurance Corporation (FDIC) should choose the least costly option for deposit insurance funds when dealing with closed banks. Depositors who exceed the insurance ceiling are generally unable to recover their funds in full and without delay.
However, if the regulator determines that a bank failure could trigger a broader financial turmoil, this limitation could be overcome and the scope of the safeguard extended. The threshold for the start-up of this mechanism is high, requiring a two-thirds majority of the FDIC Board and the Federal Reserve Board, respectively, to be determined by the Minister of Finance in consultation with the President.
The $3.3 billion reserve was once trapped.
On March 10, 2023, SVB ran into a massive rundown and collapsed in one day. Since the Bank's large deposits exceeded the insurance ceiling, the most worrying concern on the supervisory level over the weekend was not the single bank itself, but whether other regional banks would be run by chains on the next trading day.
Circle is one of the uninsured depositors. According to the article, the market quickly re-evaluated the payment capacity of USDC following the disclosure of the information, which is also why the anchoring was very fast. The USDC is also the collateralized asset and liquidity base of several DeFi agreements, so that bank risks quickly spill over to the chain market.
Saved the depositor, not the stabilizer.
By Sunday evening, the United States Government announced that all deposits of SVB and Signature Bank, which had collapsed during the same period, would be available on Monday, regardless of whether they were within the insurance ceiling. The USDC subsequently restored the anchor, and the $3.3 billion reserve held in SVB was recovered in full.
According to the article, the best place to be misread is to view USDC back as “the government will secure the market at a critical time”. But it was the regional banking system in the United States that was going to stabilize, not the currency sector itself. More crucially, this mechanism can be used only for the disposal of failed banks and not directly for the rescue of stabilizers.
Additional information:The article mentions that the cost of safeguarding SVB uninsured depositors was subsequently estimated at between $16 billion and $17 billion, which was offset by a special assessment fee for the banking sector, rather than directly by taxpayers.