Regulators guarantee deposits at failed Silicon Valley Bank as USDC regains its peg

US regulators said on Sunday that all depositors at Silicon Valley Bank and Signature Bank would have full access to their money, including amounts above the usual insurance limit. The Federal Reserve also announced a new lending facility for banks.

Silicon Valley Bank failed on Friday after a rapid run by depositors, many of them technology start-ups. The bank had invested heavily in long-term bonds that lost value as interest rates rose. When it tried to raise capital, customers withdrew funds at great speed, with social media and group chats amplifying the panic.

The failure spilled into crypto. Circle, the issuer of the USDC stablecoin, disclosed that part of its reserves was held at SVB. USDC briefly fell well below one dollar over the weekend, before recovering once regulators announced the deposit guarantee. The weekend's events highlight several lessons:

• Interest rate risk can threaten banks even without credit losses
• Digital banking and social media can accelerate bank runs
• Stablecoins are tied to the traditional banking system through their reserves

Signature Bank, which had many crypto clients, was also closed. Bank shares are under pressure, and markets are reassessing how fast the Fed will continue raising rates.

The episode is likely to feed into debates on bank supervision and stablecoin reserve rules.