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- Biden has vowed to hold those responsible for the banking crisis fully accountable following the collapse of SVB and Signature Bank.
- The failure of SVB and Signature Bank has exposed major weaknesses in the traditional banking sector due to bad debts and non-performing loans.
The United States financial sector has recently recorded its most significant bank failure since the 2008 economic crisis. The fall of crypto-focused Silvergate Capital and Silicon Valley Bank has caused fear and panic among many bank customers resulting in huge withdrawals over the weekend. As a result, a New York-based full-service financial institution Signature Bank was closed by the state chattering authority.
The closure of Silicon Valley Bank and Signature Bank attracted the attention of US President Joe Biden, who directed Secretary Janet Yellen and the country’s National Economic Council Director to work on a fast solution. As a result, the Federal Reserve announced a $25 billion bailout from the Exchange Stabilization Fund to cushion the bank depositors from imminent loss.
Notably, Biden has vowed to hold those responsible for the banking crisis fully accountable following the collapse of SVB and Signature Bank. Moreover, the failure of SVB and Signature Bank has exposed major weaknesses in the traditional banking sector due to bad debts and non-performing loans.
I’m firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.
I’ll have more to say on this tomorrow morning.
— President Biden (@POTUS) March 13, 2023
The United States Federal Reserve has, however, announced that Signature Bank shareholders and certain unsecured debt holders would not be protected. Additionally, the Federal Reserve noted that senior management at Signature Bank had been removed. As such, any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, according to the Federal Reserve. The Federal Reserve noted;
We are also announcing a similar systemic risk exception for Signature Bank, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,
What the SVB and Signature Bank failure means for crypto
The cryptocurrency market heavily depends on fiat liquidity from the traditional banking sector. The closure of Silvergate Capital, Silicon Valley Bank, and Signature Bank has significantly affected the cryptocurrency market. The outright effect was the redemption of Circle’s USDC, which had several billion already banked in them. Following the systemic risk, the USDC stablecoin lost its peg to the U.S. dollar over the weekend to trade at around $0.87.
However, the announcement of a $25 billion bailout and SVB UK subsidiary acquisition by HSBC Holdings has increased confidence in the USDC market and has since recovered its peg to the dollar. Blockchain payment company Ripple previously announced exposure to SVB, although with minimal effects on its operations.
Obviously a lot is still unknown about what happens with SVB, and as is the case with many others, we hope to have more details soon – but rest assured, Ripple remains in a strong financial position.
— Brad Garlinghouse (@bgarlinghouse) March 12, 2023
With fears of more banking failure, the Binance cryptocurrency exchange converted the remaining $1 billion Industry Recovery Initiative funds from BUSD to Bitcoin, Ethereum, and BNB.
Given the changes in stable coins and banks, #Binance will convert the remaining of the $1 billion Industry Recovery Initiative funds from BUSD to native crypto, including #BTC, #BNB and ETH. Some fund movements will occur on-chain. Transparency.
— CZ 🔶 BNB (@cz_binance) March 13, 2023
According to most economists, the failure of three traditional banks in the United States has increased the favor of top digital assets by most investors. Moreover, Bitcoin, among other reliable digital assets, can be stored in non-custodial wallets without interference from third parties.
