This is the third USDC partner bank to close this week, they only have 4 others left. High interest rates have weakened regular bank liquidity and the swings of stablecoin runs are toppling them like dominoes.
It is clear as day now that Crypto/stablecoins cannot bank in regular US banks and needs its own bank. Crypto is essentially a DDOS attack on a regular bank due to bank liquidity rules in the US. Normal banks are designed to hold a large spread of small accounts and thus keep a limited % of liquidity to cover withdrawal needs which are relatively low % for that type of customer. The rest of the cash is invested and produces a return.
Crypto has huge liquidity demands on small timeframes, especially when there are runs on exchanges. If normal banks are designed to move slowly and carefully to remain good stuarts of their depositors, crypto essentially trips that infrastructure with big swings.
Why compare market cap to volume? It’s apples and oranges. While crypto’s “total worth” is small in the grand scheme of traditional banking, the volume is significant.
It seems that the solution might be stablecoins like USDC implementing a policy that you are guaranteed one USD for every USDC you redeem within a maximum of a few business days, and under normal conditions it will realistically be much, much faster. If you want to expedite the redemption you can do so for a lower redemption rate. The idea would be that this discourages panic runs. A half baked concept as I've described it, but something roughly along these lines should work, I'd think.
> It seems that the solution might be stablecoins like USDC implementing a policy that you are guaranteed one USD for every USDC you redeem within a maximum of a few business days
That is how USDC works. You can redeem USDC for USD 1:1 from any CENTRE Consortium member (Currently Circle and Coinbase).
So a bank collapses because of zero risk management, and over exposure to speculative bubbles with market runs, and your conclusion is that good steward regulations are the problem?
And if the Fed had backstopped Silvergate rather than letting it fail, then SVB wouldn’t have needed the same thing (which did get the bailout). Turtles all the way down
Silvergate is a winddown the same way SVB and Signature will end up being. No one loses their money, even stockholders get some money. It was just more structured
Huh? A bond portfolio always includes a significant amount of short-dated maturities to provide liquidity. SVBs decided to take on much more risk and forego short-maturations for extra yield.
Yield chasing blows up overleveraged entity, nothing new here really, except usually people rightfully criticize the yield chasers/overleveragers for being greedy; this time people are acting like SVB was a victim of the Fed instead of their own extreme incompetence.
There was only a bank run once people worked out they were insolvent. They wouldn’t have been able to survive unless interest rates went back down without much net deposit change in the meantime…
Or would. They lost only <2B so far, maybe they could earn it back, same way as banks make money. It's not like they were married to their bonds assets, they could do a lot of things with those.
Circle was 1% of SVB’s assets. First there was a run on the (traditional, regulated) SVB because VCs caught a whiff of desperation and told all their portfolio companies to exit. Next came the run on USDC because $3 billion was locked inside SVB.
Contagion spreading to non-mega banks because the federal government told them to buy “risk free” treasuries and mortgage backed securities. Rates go up and suddenly if they need cash the bonds must be sold at a loss.
To blame a problem caused by central banking on crypto is absurdity to the highest level.
I've pointed this out a few times in other threads but it's worth repeating.
SVB had just recently reported that they had no liquidity issues and did not foresee any need to sell any of their assets at a loss.
Then Thursday morning the announced that they had, in fact, liquidated some of their assets at a loss.
Your bank is supposed to be zero risk and essentially as good as cash. Any sign that your bank might have liquidity problems significantly raises that risk from 0. In that case it is beyond prudent to try to move out of that bank fast.
I love a good conspiracy theory as much as the next, and wouldn't be surprised if there were ill intentions behind some of those meetings. However this bank run was rational and does not need to be explained away by any conspiracy to organize a bank run.
No "stablecoin" is ever going to actually be stable and fully liquid when there's multiple middlemen with their own agendas between the coin and the eponymous backing.
To me, "FedCoin" implies or suggests an electronic bearer instrument that is issued by the Federal Reserve. It wouldn't be mined, it would be minted and burned (aka created and destroyed). The USD is not currently offered in this format and I don't believe the Fed has any intention of doing so.
So these 'crypto banks' would not be able to make any profits from the assets they are holding? Which would mean they have to charge some fees instead?
Your link does not substantiate your claim; there's nothing in there that draws a causal link between the passage of Dodd-Frank and the failure of SVB. If you can point to a cogent argument from a reputable financial or legal analyst in a newspaper, magazine, or trusted source other than some chat board, that would be helpful.
Check my comment. I never made any claim. I asked a question. I cant find any sources, but it is a very simple technical question and im surprised that it seems so difficult to answer.
And now we know where the next bank run after SVB is going to happen. It isn't going happen at a traditional bank, because the Fed/FDIC/US Treasury have that covered now. There's going to be a run on crypto stablecoins. Hopefully the coming economic calamity will be contained within the cryptobro sphere.
Given the amount of people planning on easy arbitrage with USDC tomorrow morning, do you know if Signature under the Fed will be able to handle this demand coming from Circle?
Presumably part of the record number of people buying on Saturday want to cash out to USD tomorrow. I guess they could exchange with BTC or ETH and then to USD but that seems like it removes the "riskless" part.
So my working assumption is that many of those people are going to try to cash out Monday morning.
You can sell USDC for dollars at other exchanges, no need to go through BTC/ETC/whatever. For example Gemini has a USD/USDC pair. It won't be pegged to a dollar, like if you redeem through circle but getting $.99+ on the dollar is probably good enough for a lot of people.
> You can sell USDC for dollars at other exchanges, no need to go through BTC/ETC/whatever. For example Gemini has a USD/USDC pair. It won't be pegged to a dollar, like if you redeem through circle but getting $.99+ on the dollar is probably good enough for a lot of people.
Wow, this is scary. It reminds me of the history of monetary economics in the US during the 19th century, a period known for "wild cat" banks and a system where any bank could print their own private currency. In that system, currency was discounted the further away it was physically from the bank which issued it. The system was divided between "city banks" and "country banks." The more remote the location, the less up-to-date information was available about the health of distant banks, and so the more distant currencies were discounted more heavily.
The modern crypto wild west version of this is going to end in a result of going from "getting $0.99+ on the dollar is probably good enough for a lot of people" can turn into "getting 0.01+ on the dollar is as good as it gets" within minutes, if and when there is a run on crypto stablecoins.
That's a really interesting comparison, I'd never heard of it. Crypto is definitely wild!
The main point I was trying to make was that people trying to make a buck off of the USDC depeg didn't need to wait until Monday morning. So I didn't think Monday morning would be particularly significant in that particular regard.
This is the end of the road for crypto's intersection with the official banking system. After the recent financial disasters at FTX, Silicon Valley Bank, Signature Bank, Silvergate Bank, etc, etc, I expect that there is going to a long period where and banks and regulators are no longer keen to experiment with allowing crypto to go more mainstream in the financial system. The tide will turn the other way, and for good reason. It's great that you're all having fun with dog coins or whatever but the financial system is an essential utility to the very survival and stability of human civilization itself, like the electrical grid, or GPS, or plumbing, and I think people will get the picture now about what "innovating" with allowing crazy private currencies to intersect with the official banking system leads to.
that's custodial. it's different. cash/assets don't sit on the bank's balance sheet. they're in individual accounts, not usually lent out, and you pay a fee to keep there.
They always attack Chinese "ghost cities" and Chinese "real estate bubble / Evergrand" and Chinese "central planning" ...
But in fact, USDT and Binance are kicking while USDC and US Banks are starting to wobble. And it has to do with the irresponsibility of the central planners HERE in the USA (the Fed raising interest rates from 0.38% to 5% in a year!)
Seriously, my theory is (different from the Austrians) that the Fed creates the problems and depressions mostly by raising interest rates. Instead, keep them at zero and let the market figure things out. I am fine with printing money as long as you raise taxes to remove it from the system. Raising interest rates is far worse and a depression is far worse than any inflation.
Well, I guess somehow the reputation of USA of being an "economically free" country versus China lets them get away with central planning and soon the CBDCs and the national IDs for everyone. Not that I like that in China either!
If you raise taxes enough, you can actually reduce inflation and solve the problem. But which country has the legal structure in place to raise taxes essentially every few months, on demand? Even if they did, almost no companies are ready to handle tax rates that change by the month.
Nearly every hyperinflation example (there are very few, in fact) has something additional to that stuff.
In the case of Weimar Germany, there was the little matter of THE VERSAILLES TREATY that required them to endlessly pay war reparations and punitive payments in gold. Britain told France to cut it out, but France was mad enough at the Germans that they continued. This led to the rise of the Nazis and WW2.
Oh, and meanwhile there was a "free money miracle" going on in nearby Austria, and clearly did not lead to hyperinflation, quite the opposite: everyone paid off their taxes due to the demurrage of the free money... keep in mind this was while all around them there was a growing depression... even Mises institute grudgingly agrees!
Note that professional historians are not united on the Treaty of Versailles being too onerous and a cause of Ww2, though that's certainly the conventional vaguely-heard-about-it impression.
It argues quite convincingly that war reparations had almost nothing to do with the hyperinflation and that the seeds were sown way before ww1 and then watered during WW1 when germany essentially became a command economy and finally harvested by the first Weimar government's managment.
Warren* Mosler, one of yhe founders of Modern Monetary Theory. Lead author was Phil Armstrong, and he did a great discussiom of the paper on the MMT podcast.
Rather, he is Modern Monetary Theory. MMT doesn't have an actual theory of the economy; it uses the standard model and just has a different vibe. So it's just whatever he and Stephanie Kelton feel like saying at the time.
The most notable different policy prescription (job guarantee) is odd because it's originally a right-wing program they just decided is left-wing.
There are many more economists building on MMT than just them, at many institutions globally.
Describing the job guarantee/transition job as equivalent to "workfare" reveals a fundamental misunderstanding of the JG. Two ways in which it differs significantly (but not the only ways):
1/ it pays a living wage / socially inclusive wage, unlike most current (un)employment insurance programs
2/ it is non-coercive. You have the promise of that job, not a mandate to perform it. Other social programs remain available for those unable for for a variety of reasons.
> 1/ it pays a living wage / socially inclusive wage, unlike most current (un)employment insurance programs
No, it pays minimum wage. (Mosler calls it "non-disruptive wage" because it's not enough to compete with other jobs.) The trick is the marketing just assumes minimum wage will be raised, so they quote that number instead. And of course it never gets raised and you can never be promoted.
> 2/ it is non-coercive. You have the promise of that job, not a mandate to perform it. Other social programs remain available for those unable for for a variety of reasons.
It's coercive to regular workers because their boss can fire them at any point, safe in the knowledge they'll get a minimum wage job the next day.
Just because they don't completely redefine economic models from the start doesn't mean MMT isn't a theory. They clearly have different ideas about how policy should be implemented and what will happen.
Their description of how government issued currency, coercion, and tax act as a tool to capture services from the economy (as opposed to filling up a treasury for the government to spend) is extremely underrated in mainstream economics.
> right-wing program they just decided is left-wing.
Why would MMT be limited to traditionally left/right boundaries?
> Just because they don't completely redefine economic models from the start doesn't mean MMT isn't a theory.
Yes it does, it makes it not an economic theory but a political one.
> Their description of how government issued currency, coercion, and tax act as a tool to capture services from the economy (as opposed to filling up a treasury for the government to spend) is extremely underrated in mainstream economics.
It is Abba Lerner's functional finance and it essentially only applies to the US federal government, as noone else is big enough. But they also like to extend it to "banks don't lend out deposits", which isn't true. And the idea that you can raise taxes to control inflation doesn't appear to be true either.
> Why would MMT be limited to traditionally left/right boundaries?
Cuz they're only trying to sell it to left-wing politicians.
all countries have their flaws. Evergrand basically defaulted on their loans and was the equivalent of SVB for real-estate in china even the AUM were similar. The real-estate market is probably the most important market in china especially for the wealthy.also the market should be able to adjust to any rate not only 0 if it’s truly free.
As someone who's not an expert in finance, it's impossible for me to tell how seriously to take various predictions in these threads, because almost none of them disclose their exposure, and so there's no way to distinguish between wishful thinking and sound analysis.
So for all these non-disclosing multi-paragraph posts, they might as well just say "it'll be fine, trust me bro" from my point of view.
On the other hand, over the past 2 years with ZIRP and the money printer working overtime, money was pumped into stonks, startups, and crypto. SVB went from $50 billion in deposits to $200 billion. Signature went from $40 billion to $85 billion. Long COVID did kill them.
The JPM report that claims SIVB's position was unique also includes Signature bank in their figure on page 2. By their loss adjusted capital ratio chart signature was better off than all but 5 of the 20 listed banks.
If you have a witty or snarky point to make, please also elaborate in a later sentence to make explicit the assumptions that make your witty point witty, for those that are out of the loop.
It is clear as day now that Crypto/stablecoins cannot bank in regular US banks and needs its own bank. Crypto is essentially a DDOS attack on a regular bank due to bank liquidity rules in the US. Normal banks are designed to hold a large spread of small accounts and thus keep a limited % of liquidity to cover withdrawal needs which are relatively low % for that type of customer. The rest of the cash is invested and produces a return.
Crypto has huge liquidity demands on small timeframes, especially when there are runs on exchanges. If normal banks are designed to move slowly and carefully to remain good stuarts of their depositors, crypto essentially trips that infrastructure with big swings.