- The US government is bailing out bankrupt banks. However, BUSD and USDC continue to suffer.
- The crypto community in general criticized the government’s bailout.
In recent days, the collapse of Signature and the Silicon Valley Bank has had quite an impact on the financial and crypto markets.
On March 12, a long-awaited response came from the US government, aimed at addressing the challenges faced by banks and their depositors.
The White House breaks the silence
The government’s response was communicated through a joint statement from the Treasury, the Federal Reserve and the FDIC (Federal Deposit Insurance Corporation).
It confirmed that the issue with Silicon Valley Bank will be successfully resolved with the approval of US Treasury Secretary Janet Yellen.
The statement also assured the bank’s depositors that they would be fully protected and would be able to access their money after March 13.
An equivalent risk exemption was declared for Signature Bank, confirming that all depositors of the bank would be repaid in full.
In addition, it was stated that there would be no financial burden to taxpayers for resolving these banks.
The president of the United States also took to Twitter to share his perspective, highlighting the government’s intention to strengthen oversight and regulation of major financial institutions.
In addition, he made it clear that the authorities are determined to hold those responsible for such events accountable.
On my direction, @SecYellen and my director of the National Economic Council worked with banking regulators to address issues at Silicon Valley Bank and Signature Bank.
I’m glad they found a solution that protects workers, small businesses, taxpayers and our financial system. https://t.co/CxcdvLVP6l
— President Biden (@POTUS) March 13, 2023
Paxos and Circle respond
Following the government’s announcement to resolve the issues at both banks, the Paxos team confirmed that their stablecoin reserves were fully covered. And it can be redeemed by customers at a 1:1 ratio to the US dollar.
The team further clarified that 90% of Paxos’ reserves were held in US Treasuries and overnight repos and there was no real threat to their stablecoins.
Circle’s team followed suit, as co-founder Jeremy Allen assumed Twitter to assure holders that their assets were absolutely safe.
On the other hand, despite Paxos’ efforts to dampen the FUD around its stablecoin BUSD, its market cap continued to decline.
However, the same cannot be said about USDC’s market cap, which saw some improvements in its market cap thanks to the confidence whales and fund managers showed in the stablecoin.
While government bailouts can provide investors with short-term certainty, members of the cryptocurrency community argue that such bailouts can actually encourage risky behavior.
Many influential figures have drawn parallels between the current situation and the 2008 banking crisis.
CZ and other prominent leaders expressed concern that government bailouts could lead banks to prioritize their own interests over the safety and well-being of their depositors.