Systemic Risks of Broader Fallout in the Financial System Haven’t Dissipated – Circle CEO
Circle CEO Jeremy Allaire has expressed concern that the risks to the banking system have not entirely dissipated despite the recent intervention of the US federal government to safeguard depositors of the collapsed Silicon Valley Bank.
While he commended the government’s actions, Allaire emphasized in a recent CNBC interview that contagion risks remain.
According to Allaire, the federal government took the proper steps to prevent further fallout from the collapse of Silicon Valley Bank. He also noted that there have been systemic risks of contagion throughout the financial system. Although the government’s actions have mitigated some of those risks, they have not been completely eliminated.
In light of these concerns, Circle has taken measures to reduce its exposure to the embedded risk in the fractional reserve banking system. Allaire emphasized that the company is focused on partnering with custodians that are not significant risk-taking cash custodians and has also introduced daily transparency into the short-term treasury bills in the Circle Reserve fund.
The collapse of Silicon Valley Bank led to a temporary de-pegging of USD Coin (USDC) over the weekend, revealing that Circle held billions in the financial institution.
While Allaire alluded to the fast pace of rate hikes by the Federal Reserve contributing to the bank’s downfall, he also noted that the collapse came as a surprise.
Allaire believes that the policymakers’ decision to tighten monetary policy may have caused errors, resulting in long bond durations that some financial institutions hold. Silicon Valley Bank reportedly incurred a $1.8 billion loss after selling bonds below their par value.
In conclusion, while the US government’s actions have mitigated some risks in the financial system, Circle’s CEO remains cautious about the potential for contagion and the need for further precautionary measures to minimize exposure to risk.