• Silicon Valley Bank (SVB) collapsed in March, and the Federal Reserve announced that it would work with the FDIC to make both insured and uninsured depositors whole.
• Circle and Sequoia Capital were reportedly among the top 10 depositors at SVB, with Circle holding roughly $3.3 billion in deposits and Sequoia having roughly $1 billion.
• The failure of SVB has put a spotlight on how regulators handle deposit insurance, as well as raised questions about USDC’s pegging to the U.S dollar following the bank’s collapse.
SVB Bank Collapse
In March, Silicon Valley Bank (SVB) collapsed, prompting the Federal Reserve to announce that it would work with the Federal Deposit Insurance Corporation (FDIC) to make both insured and uninsured depositors whole.
Documents from the FDIC revealed that Circle and venture capital firm Sequoia Capital were among SVB’s top 10 depositors, with Circle holding roughly $3.3 billion in deposits and Sequoia having roughly $1 billion. Other major depositors included Silicon Valley Bank itself, SVB Financial Group, biotechnology research company Altos Labs and China-based Kanzhun Limited behind a major online recruitment platform.
Deposit Insurance Questions
The failure of SVB has put a spotlight on how regulators in the United States handle deposit insurance as well as raising questions about USDC’s pegging to the U.S dollar following its collapse. The FDIC insures up to $250,000 per depositor but have explored raising this limit due to systemic risk exceptions for some deposits over this amount held by large firms such as Circle and Sequoia Capital.
Following SVB’s collapse, Circle confirmed it had around $3.3 billion exposure to the bank which caused USDC stablecoin briefly depegged from USD shortly afterwards. In an effort to regain control of their currency pegging value they announced plans for launching a native version of USDC on Arbitrum network in June 2021 .
The collapses of Signature Bank and First Republic Bank alongside SVB have highlighted risks associated with unstablecoins such as Depegging ,bank runs etc . To address these concerns Treasury Department ,Federal Reserve & FDIC are exploring ways of improving deposit insurance system .