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.
Silvergate Bank’s Downfall
Silvergate Bank, known for its cryptocurrency-friendly services, fell partly because of 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. Although Silvergate’s losses were reported to be $1 billion, it triggered the downfall of Silicon Valley Bank (SVB) and others.
The Collapse of Silicon Valley Bank (SVB)
SVB’s failure later on March 10, 2023, was significant with $209 billion in assets, making it the third-largest bank collapse in U.S. history. The closure left depositors uncertain about the fate of deposits exceeding the insured limit of $250,000.
The Depegging of Stablecoins
Circle’s usd coin (USDC) dropped from its $1 parity after SVB’s collapse, causing five additional stablecoins to depeg from their dollar value. Circle revealed that it had $3.3 billion in SVB, leading to uncertainty about the completion of the transfer. Circle committed to covering any potential shortfall.
The Takeover of Signature Bank
Signature Bank, accommodating to cryptocurrencies, experienced its fourth-largest banking collapse. Regulators and the FDIC took control of the bank, prompting the U.S. government and central bank to introduce programs for domestic banks. The FDIC assured full coverage for all uninsured depositors of both SVB and Signature Bank.
The Collapse of First Republic Bank
First Republic Bank’s stock plummeted and failed to rebound. As a result of SVB’s downfall, it experienced unprecedented deposit outflows of $100 billion. Eventually, the bank was seized and sold to JPMorgan Chase, becoming the second-largest U.S. bank by assets to collapse following Washington Mutual.
A Critical Reassessment of Banking Soundness
The U.S. banking crisis in 2023 exposed the fragility of the financial ecosystem and led to a reassessment of banking soundness. The series of collapses raised concerns about systemic vulnerabilities and the concentration of power in the banking sector.
Hot Take: Reflecting on the U.S. Banking Crisis of 2023
The year 2023 was a tumultuous one for the U.S. banking sector, with unprecedented failures and significant repercussions. The collapse of major banks, the depegging of stablecoins, and government interventions highlighted the vulnerabilities and monopolistic tendencies within the banking industry. These events necessitated a critical examination of the soundness of the financial system and raised concerns about the consolidation of power. The aftermath of the banking crisis will likely shape future regulations and practices within the industry, as stakeholders seek to prevent similar systemic failures and protect depositor interests.
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