Amidst the banking panic in the US, Signature Bank is being forced to shut down in turn. Coinbase and Paxos, meanwhile, have released disclosures revealing that they have blocked liquidity at the player
Signature Bank is forced to close in turn
Sunday night, Signature Bank suffered the same fate as Silicon Valley Bank a few days earlier. And for good reason, in a joint decision by the U.S. Treasury Department, the Federal Reserve (FED) and the Federal Deposit Insurance Corporation (FDIC), the bank was forced to close to protect the assets of customers.
The US banking system is currently in a systemic crisis called bankrun: many customers at several institutions are seeking to withdraw their assets. However, not all cash is necessarily stored in cash, much of it is cleared. This means that instead of having dollars, banks can have equivalents, such as treasury bills for example.
The problem is that bonds have varying maturities, from three months to ten years depending on the category. But in the case of a bankrun, the bank needs cash quickly, which may force it to sell assets at a discount to their real value. This will be enough to pay off the first customers, but will end up causing a much more serious liquidity crisis.
The problem can then create a chain reaction, with banks stockpiling the reserves of other banks.
Coinbase and Paxos hit by Signature Bank
As with Silicon Valley Bank, many crypto players were working with Signature Bank, this is notably the case for Coinbase and Paxos. Indeed, both companies have announced that they have been affected, and now have blocked cash at the institution concerned.
As far as Coinbase is concerned, 240 million dollars are blocked. However, the platform is trying to be reassuring, saying that “all customer cash at banks continues to be protected by FDIC transfer insurance”:
Despite the turbulence we have seen in the traditional banking sector recently, Coinbase continues to operate as usual. At Coinbase all client funds continue to be safe and accessible including USDC conversions which will resume on Monday.
– Coinbase (@coinbase) March 12, 2023
Paxos has been hit with $250 million. Nevertheless, the company says it has “private deposit insurance well in excess” of its cash balance and FDIC limits:
Paxos currently holds $250M at Signature Bank and holds private deposit insurance well in excess of our cash balance and FDIC per-account limits. Seeking private deposit insurance is part of our conservative approach to managing customer assets exceeding FDIC insurance limits.
– Paxos (@PaxosGlobal) March 12, 2023
All impacted funds should normally be fully recovered, but it is unclear how long before this happens. While this crisis is on a scale far greater than the cryptocurrency ecosystem, the next few days will be critical to taking the full measure.
