Sunday, July 14, 2024

2023 marked a pivotal year in the U.S. economy, characterized by a significant disruption in the American banking industry. This disturbance arose from the simultaneous collapse of three major banks, marking the largest such occurrence in U.S. history. During this turmoil, cryptocurrencies, particularly bitcoin, exhibited exceptional stability, even benefiting from the misfortunes of the banking sector. Concurrently, additional consequences emerged, including the destabilization of Circle’s second-largest stablecoin, resulting from difficulties in recovering $3.3 billion from the now-bankrupt Silicon Valley Bank (SVB).

Historic Triple Collapse in U.S. Banking

The year 2023 saw the U.S. experience the second, third, and fourth largest bank failures in its history, leading to the collapse of four major banks: Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank. The domino effect commenced with the voluntary liquidation of Silvergate Bank on March 8, 2023.

Silvergate, known for its support of cryptocurrency services, faced challenges partly due to a U.S. Department of Justice (DOJ) investigation into its ties with the defunct crypto exchange FTX and Alameda Research. While Silvergate’s downfall, with a reported $1 billion in losses, was not the most severe, it triggered the subsequent collapse of SVB and others. SVB’s difficulties became apparent on March 10, 2023.

SVB, with $209 billion in assets at collapse, became the third-largest bank failure in U.S. history, following Washington Mutual in 2008. The closure by the U.S. Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation raised serious concerns about the safety of deposits over the insured limit of $250,000. The abrupt closure on a Friday left many stakeholders anxious about their uninsured deposits throughout the weekend.

The downfall of SVB led to a significant impact on crypto firms using Silvergate’s SEN Leverage product, resulting in the depegging of Circle’s usd coin (USDC) from its $1 target and affecting five other stablecoins. This was triggered by Circle’s disclosure of having $3.3 billion in SVB, with uncertainties surrounding the fund’s retrieval. In response to the depegging event, Circle committed to covering any potential shortfall.

The U.S. then witnessed its fourth-largest bank failure with the takeover of Signature Bank by New York regulators and the FDIC. With assets totaling $118 billion, this event prompted the U.S. government and central bank to introduce a Bank Term Funding Program and Exchange Stabilization Fund for domestic banks. The FDIC guaranteed full coverage for all uninsured depositors of both SVB and Signature Bank. Following these measures, Circle’s USDC quickly regained its value, moving closer to its dollar parity.

Despite assurances of banking stability from the government, the reality was less reassuring. Just days before Silvergate’s liquidation, First Republic Bank’s stock plummeted, failing to recover. Following SVB’s collapse, First Republic experienced a massive outflow of deposits, losing $100 billion. By April 28, the FDIC began seeking potential buyers for First Republic. On May 1, 2023, the bank was seized and sold to JPMorgan Chase, making it the second-largest bank failure in the U.S. after Washington Mutual.

The 2023 U.S. banking crisis unfolded as a narrative of widespread institutional breakdowns and rapid responses, highlighting the inherent vulnerabilities in the current financial ecosystem. These events called for an urgent reevaluation of banking robustness and led to further consolidation in the banking industry. This chain of failures resulted in a significant concentration of assets and influence, raising concerns about systemic risks and the banking sector’s potential monopolistic tendencies.

What are your perspectives on the major bank collapses in the U.S. this year? Please share your insights and viewpoints on this topic in the comments section below.

Frequently Asked Questions (FAQs) about 2023 Banking Crisis

What were the main events of the 2023 US banking crisis?

The 2023 US banking crisis saw the collapse of Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank, marking some of the largest bank failures in US history.

How did cryptocurrencies perform during the 2023 banking crisis?

Cryptocurrencies, particularly Bitcoin, showed remarkable resilience during the 2023 banking crisis, even benefiting from the traditional banking sector’s downturn.

What was the impact of Silicon Valley Bank’s collapse?

Silicon Valley Bank’s collapse, being the third-largest in US history, raised concerns about uninsured deposits and led to the depegging of Circle’s USD Coin (USDC) and other stablecoins.

What was the government’s response to the banking collapses?

The US government and central bank introduced measures like the Bank Term Funding Program and guaranteed full coverage for all uninsured depositors of SVB and Signature Bank.

What happened to First Republic Bank during the crisis?

First Republic Bank experienced a significant outflow of deposits following SVB’s collapse, leading to its eventual seizure and sale to JPMorgan Chase.

More about 2023 Banking Crisis

  • Overview of the 2023 US Banking Crisis
  • Impact of Banking Failures on Cryptocurrency Markets
  • Silicon Valley Bank Collapse and its Consequences
  • Government Measures during Banking Crisis
  • The Downfall of First Republic Bank in 2023

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5 comments

Mike_Jameson December 28, 2023 - 7:19 pm

wow, didn’t realize how bad the banking situation was this year, crazy times for sure

Reply
CryptoQueen December 28, 2023 - 7:46 pm

Bitcoin really showed its strength, huh? Not surprised though, crypto is the future.

Reply
Jenny_from_block December 29, 2023 - 1:05 am

First republic going down was a shock! I mean, JPMorgan Chase picking it up, what’s next?

Reply
FinanceGuru December 29, 2023 - 4:22 am

This is an eye-opener, the banking system needs a serious overhaul. Govt did what they could, but still…

Reply
BankerBob December 29, 2023 - 9:23 am

As someone in the industry, it’s heartbreaking to see these collapses. We need better risk management.

Reply

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