Coinbase, Circle, Paxos: Here Are The Major Firms With Funds Tied ...

13 Mar 2023

Forbes

Topline

As financial regulators take the helm of Silicon Valley Bank and Signature to avoid a banking crisis, several companies have gotten caught in the turmoil, disclosing they have millions—or billions—of dollars tied up in the banks, and though the Biden Administration has assured depositors they would get their money back, many remain concerned about the potential implications.

The Signature Bank headquarters at 565 Fifth Avenue in New York, US, on Sunday, March 13, 2023.

Anadolu Agency via Getty Images Key Facts

On Friday, Silicon Valley-based startup lender SVB became the largest bank to collapse since the 2008 financial crisis.

The closure came only a few days after SVB announced it sold a $21 billion bond portfolio, which lost value after the Federal Reserve raised interest rates, at a loss of $1.8 billion.

Caught in the collapse of SVB, as clients began to withdraw their cash in droves, Signature Bank shut down its operations abruptly on Sunday, and financial regulators stepped in to take over as they claimed keeping the bank open would cause more instability to the banking system.

New York’s Department of Financial Services shut down Signature Bank, and the Federal Deposit Insurance Corporation stepped in as the bank’s receiver, in a move to what it says is “to protect depositors,” according to a statement released on Sunday.

Companies With Financial Ties To Svb Circle: $3.3 Billion Roku: $487 million Block-Fi: $227 million Roblox: approximately $150 million Ginkgo Bioworks Holdings: $74 million iRhythm Technologies: $54.5 million Rocket Lab: $38 million Sangamo Therapeutics: $34.4 million LendingClub: $21 million Payoneer Global Inc: $20 million Protagonist Therapeutics: $13 million Oncorus: $10 million Eiger Biopharmaceuticals: $8.3 million Compugen LTD: Amount undisclosed QuantumScape Corp: Amount undisclosed Companies With Financial Ties To Signature Paxos: $250 million Coinbase: $240 million Marathon Digital: $142 million Celsius Network: Amount undisclosed Binance: Amount undisclosed Tangent

The shutdown of Signature Bank raises major questions for the crypto industry, as the bank was one of the first to open its doors to digital assets. The bank has stated its digital-asset clients held $16.5 billion in deposits, according to the New York Times. It previously sought to lower its exposure to crypto—which accounted for nearly a quarter of its total deposits in September 2022—following a tumultuous year the industry faced in 2022.

What To Watch For

In a joint statement, the Fed, FDIC and U.S Treasury on Sunday announced several measures to restore public confidence in the U.S. banking system, including giving depositors from both SVB and Signature Bank access to their money on Monday. Shareholders and certain unsecured debt holders would not be not be protected from the fallout, and senior management at both banks have been removed. Hedge fund manager Bill Ackman, expects more banks to fail, though the intervention of the government provides a framework as to how it will respond. “More banks will likely fail despite the intervention, but we now have a clear roadmap for how the [government] will manage them,” said the Pershing Square founder in a tweet.

Key Background

SVB had deposits totaling $60 billion during the first quarter of 2020, but the explosion of the tech industry during the pandemic quickly sent its exposure to more than $200 billion only two years later. With an influx of cash deposits coming in from tech companies, SVB purchased debt that included mortgage-backed securities and U.S. Treasury bonds, which promise slow and steady returns so long as interest rates remain low. But as the Fed raised interest rates to combat high inflation, the investments soured as newer government bonds had more interest than expected. With higher interest rates making it less attractive for SVB’s clients to invest in new companies, funding dried up and clients began withdrawing money in droves.