Kalindakano

A much longer thread will be coming with some reflections on all of the past weeks events. We've long advocated for full-reserve digital currency banking that insulates our base layer of internet money and payment systems from fractional reserve banking risk.

Indeed, the Payment Stablecoin Act, which remains a very active pursuit for Congress, would enshrine in law a regime where stabelcoin funds would be held with cash at the Fed and short-term T-Bills. We need this law now more than ever if we want a truly safe financial system.

The remaining 23% ($9.7bn) is in cash. Last week, we took action to reduce bank risk and deposited $5.4bn with BNY Mellon, one of the largest and most stable financial institutions in the world, known for the strength of their balance sheet and as a custodian. $3.3bn of USDC’s cash reserves remain with SVB. As of Thursday, we had initiated transfers of these funds to other banking partners. Though these transfers had not yet been settled as of close of business Friday, we remain confident in the FDIC’s management of the SVB situation and stand ready to receive these funds. $1bn of the USDC reserves is held with Customers Bank as the industry looks to expand their transaction settlement options, and Circle maintains transaction and settlement accounts for USDC with Signature Bank. Both are important banks to the digital asset industry. USDC has zero exposure to Silvergate; we had transferred out what were limited reserves to support transaction settlement with USDC prior to bank closure.

What do we expect with SVB and the FDIC? We have reason to believe that under applicable FDIC policy, transfers initiated prior to a bank entering receivership would have otherwise been processed normally. In other words, the FDIC should allow transactions to settle in the ordinary course through the end of a bank’s standard daily processing cycle until the FDIC takes control of the failed institution. We understand that the FDIC is currently determining the status of transactions initiated prior to the applicable receivership cutoff times, and it is possible that the transfers initiated on Thursday will be processed on Monday. Moreover, SVB has a strong franchise that is at the center of American entrepreneurship and technology industry growth. We are hopeful that the FDIC as receiver will seek a rapid purchase and assumption of a franchise as strong as SVB's to ensure all depositors are made whole. However, it is also possible that SVB may not return 100% and that any return might take some time, as the FDIC issues IOUs (i.e., receivership certificates) and advanced dividends to deposit holders. In such a case, Circle, as required by law under stored-value money transmission regulation, will stand behind USDC and cover any shortfall using corporate resources, involving external capital if necessary.

The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs). These funds will be transferred to the SIBs, US Treasury (UST) money market funds and short-term UST. There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits. These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions. The increased demand for short-term UST will drive short rates lower complicating the @federalreserve’s efforts to raise rates to slow the economy. Already thousands of the fastest growing, most innovative venture-backed companies in the U.S. will begin to fail to make payroll next week. Had the gov’t stepped in on Friday to guarantee SVB’s deposits (in exchange for penny warrants which would have wiped out the substantial majority of its equity value) this could have been avoided and SVB’s 40-year franchise value could have been preserved and transferred to a new owner in exchange for an equity injection. We would have been open to participating. This approach would have minimized the risk of any gov’t losses, and created the potential for substantial profits from the rescue. Instead, I think it is now unlikely any buyer will emerge to acquire the failed bank. The gov’t’s approach has guaranteed that more risk will be concentrated in the SIBs at the expense of other banks, which itself creates more systemic risk. For those who make the case that depositors be damned as it would create moral hazard to save them, consider the feasibility of a world where each depositor must do their own credit assessment of the bank they choose to bank with. I am a pretty sophisticated financial analyst and I find most banks to be a black box despite the 1,000s of pages of @SECGov filings available on each bank. SVB’s senior management made a basic mistake. They invested short-term deposits in longer-term, fixed-rate assets. Thereafter short-term rates went up and a bank run ensued. Senior management screwed up and they should lose their jobs. The @FDICgov and OCC also screwed up. It is their job to monitor our banking system for risk and SVB should have been high on their watch list with more than $200B of assets and $170B of deposits from business borrowers in effectively the same industry. The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses (and the resulting losses of 10s of 1,000s of jobs for some of our most talented younger generation) while also permanently impairing our community and regional banks’ access to low-cost deposits. This administration is particularly opposed to concentrations of power. Ironically, its approach to SVB’s failure guarantees duopolistic banking risk concentration in a handful of SIBs. My back-of-the envelope review of SVB’s balance sheet suggests that even in a liquidation, depositors should eventually get back about 98% of their deposits, but eventually is too long when you have payroll to meet next week. So even without assigning any franchise value to SVB, the cost of a gov’t guarantee of SVB deposits would be minimal. On the other hand, the unintended consequences of the gov’t’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below.

Circle’s USDC operations will open for business on Monday morning, including with new automated settlement via our new partnership with Cross River Bank. circle.com/en/pressroom/3…

Update thread on USDC We were heartened to see the US government and financial regulators take crucial steps to mitigate risks extending from the fractional banking system. 100% of deposits from SVB are secure and will be available at banking open tomorrow.

Sharing an Update on USDC and Silicon Valley Bank. circle.com/blog/an-update…

@circle is currently protecting #USDC from a black swan failure in the U.S. banking system. @SVB_Financial is a critical bank in the U.S. economy and its failure - without a Federal rescue plan - will have broader implications for business, banking and entrepreneurs.

Ya mucho lunes, ¿no?

@Eldiamantenegro Que risa tu ataque. Muy cliche de twitter 😂

@Danny_MH Denuncia por acoso... casual

¿Qué se hace cuando alguien insiste en ser tu amiga pero tu no quieres? A) ignoras sus mensajes. B) inventas pretextos para no estar disponible. C) le dices que no estás interesada.

@pacopazbotello Buenazaaa tu idea, pero y si lo que querían era invitarme a un trío? 😛

Le dices que está bien guapo/a su pareja, y cómo por arte de magia desaparece ja

Ya me harté de que las cosas solo me hagan “más fuerte” y no me maten.