The U.S. economy experienced an interesting year in 2023, marked by unprecedented upheaval within the American banking sector due to the combined collapse of three major banks, the largest the nation has historically seen. Amidst this chaos, crypto assets such as bitcoin demonstrated remarkable resilience, even capitalizing on the banking sector’s misfortunes. Concurrently, other repercussions unfolded, including the de-pegging of the second-largest stablecoin, managed by Circle, following the disclosure of difficulties in retrieving $3.3 billion from the now-insolvent Silicon Valley Bank (SVB).
The Triple Shock of U.S. History’s Largest Bank Failures
In 2023, the U.S. witnessed the second, third, and fourth largest bank failures in its history, culminating in the failure of four significant institutions: Silvergate Bank, Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank. The cascade of collapses began with Silvergate Bank, which set off a chain reaction with its voluntary liquidation announcement on March 8, 2023.
Known for its cryptocurrency-friendly services, Silvergate’s fall was partly attributed to an investigation by the U.S. Department of Justice (DOJ) into its connections with the fallen crypto exchange FTX and the quantitative trading firm Alameda Research. Silvergate’s collapse may not rank among the most substantial, with reported losses of $1 billion, yet it started the sequence leading to the downfall of Silicon Valley Bank (SVB) and others. SVB encountered trouble shortly afterward, on March 10, 2023.
With $209 billion in assets at the time of its failure, it stood as the third-largest bank collapse in U.S. history after Washington Mutual in 2008. The shuttering of SVB by the U.S. Federal Deposit Insurance Corporation (FDIC) and the California Department of Financial Protection and Innovation left significant uncertainty about the fate of deposits exceeding the insured $250,000 limit. The bank’s closure on a Friday left many in suspense over the weekend, uncertain about the status of their uninsured deposits.
While various crypto firms utilized Silvergate’s SEN Leverage product, the downfall of SVB precipitated a drop in Circle’s usd coin (USDC) from its targeted $1 parity, consequently leading to the depegging of five additional stablecoins from their dollar value. The trigger for this occurrence was Circle’s revelation that it had $3.3 billion in SVB. Despite efforts to withdraw these funds, the company faced uncertainty about the completion of the transfer. In response to the depegging incident, the company issued a statement committing to cover any potential shortfall.
Simultaneously, the U.S. experienced its fourth-largest banking collapse with the takeover of the crypto-accommodating Signature Bank by New York regulators and the FDIC. Possessing $118 billion, the incident prompted the U.S. government and central bank to unveil a Bank Term Funding Program and Exchange Stabilization Fund for domestic banks. The FDIC additionally assured full coverage for all uninsured depositors of both SVB and Signature Bank. Following these interventions, Circle’s USDC swiftly rebounded, steering back toward its dollar parity.
Despite government assurances of a stable banking system, reality proved otherwise. Mere days before Silvergate’s liquidation, First Republic Bank’s stock plummeted and failed to rebound. In the wake of SVB’s downfall, First Republic faced “unprecedented deposit outflows,” reporting the departure of $100 billion in deposits. By April 28, the FDIC was on the hunt for potential buyers for the beleaguered institution. Come May 1, 2023, regulators seized and sold the bank to JPMorgan Chase, marking it as the second-largest U.S. bank by assets to collapse following Washington Mutual.
In 2023, the U.S. banking crisis emerged as a stark narrative of widespread institutional failures and urgent counteractions, exposing the fragility inherent in today’s financial ecosystem. The tumultuous developments of the year necessitated a critical reassessment of banking soundness and led to the continued consolidation of the modern banking structure. This series of collapses resulted in a dense unification of assets and influence, heightening apprehensions about systemic vulnerabilities and the monopolistic inclinations of the banking sector in general.
What do you think about the collapse of the major banks in the U.S. this year? Share your thoughts and opinions about this subject in the comments section below.
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