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Circle's USDC stablecoin, the second-largest stablecoin at $42 billion of market cap, depegged from the USD, trading as low as $0.88 on Coinbase this morning (March 11, 2023). This followed Circle's announcement that $3.3 billion of USDC's reserves were held at Silicon Valley Bank (SVB) which was shut down yesterday by the California Department of Financial Protection and Innovation and taken over by the Federal Deposit Insurance Corporation (FDIC). Also, Coinbase announced that USDC redemptions would be temporarily suspended.

"The current interest rate environment has had dramatic effects on the profitability and risk profile of banks' funding and investment strategies. First, as a result of the higher interest rates, longer term maturity assets acquired by banks when interest rates were lower are now worth less than their face values. The result is that most banks have some amount of unrealized losses on securities. The total of these unrealized losses, including securities that are available for sale or held to maturity, was about $620 billion at yearend 2022. Unrealized losses on securities have meaningfully reduced the reported equity capital of the banking industry. The good news about this issue is that banks are generally in a strong financial condition, and have not been forced to realize losses by selling depreciated securities. On the other hand, unrealized losses weaken a bank's future ability to meet unexpected liquidity needs. That is because the securities will generate less cash when sold than was originally anticipated, and because the sale often causes a reduction of regulatory capital."

A quantitative model of mortgage lending suggests that regulation accounts for roughly 60% of shadow bank growth, while technology accounts for roughly 30%.

"The events of the last few days highlight the risks posed by excessive reliance on centralized infrastructure, and will be certain to inform future decisions. But despite a quickly-evolving regulatory environment in the U.S., some of the basic primitives granted by digital bearer assets such as bitcoin-that they are trivially self-custodied, disintermediated, and provide on-chain transparency-are more acute than ever, echoing a sentiment which sparked a pseudo-anonymous Satoshi Nakamoto to release a new project to the world amid the Great Financial Crisis in October of 2008."