Paxos and Coinbase still have cash at Signature, FED releases market rescue plan BTFP: depositors don't need to worry about a run on the banks

The cryptocurrency-friendly bank, Signature Bank, is rumored to have encountered a systemic risk similar to that of being shut down by its state-chartered institution. Paxos managed to escape the first time, but not the second, with a current cash reserve of $250 million still deposited in Signature Bank. The U.S. compliant exchange, Coinbase, also announced that approximately $240 million of the company's funds are held in Signature Bank. However, according to the latest announcement from the Federal Reserve, all depositors' funds will be protected, and the Bank Troubled Fund Program (BTFP) will be launched, allowing banks to exchange their eligible assets for cash. Please refrain from excessive worry and bank runs.

Paxos Exposes $250 Million in Exposure

The deposit institutions for BUSD stablecoin issuer Paxos include BMO Harris Bank N.A., Signature Bank, which is under FDIC receivership, Silvergate Bank which has closed down, State Street Bank and Trust Company, and Customers Bank. As of February 28, Paxos holds $680 million in fiat currency with the deposit institutions. Paxos has now come forward to declare that $250 million of its cash reserves are held at Signature Bank, although there is FDIC and additional insurance, further instructions from regulatory authorities are awaited.

Paxos emphasizes that safeguarding customer assets is its top priority. As a trust company regulated by NYDFS, all stablecoin reserves are fully backed and can be redeemed for customers on a 1:1 USD basis at any time.

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

Coinbase Exposes $240 Million in Exposure

US compliant exchange Coinbase also announced that as of last Friday, approximately $240 million of company funds are held at Signature Bank. According to FDIC's statement, the funds should be fully retrievable.

As of close of business Friday March 10 Coinbase had an approximately $240m balance in corporate cash at Signature. As stated by the FDIC, we expect to fully recover these funds. https://t.co/XY5L7m4RMs

— Coinbase (@coinbase) March 12, 2023

Fed Announces BTFP Program, Banks Can Exchange for Cash

Over the weekend, the three major US regulatory agencies held an emergency meeting and issued a joint statement to safeguard all depositors' funds. The Federal Reserve subsequently announced the Bank Term Funding Program, providing liquidity to US deposit institutions. Banks can use eligible securities as collateral to borrow from Federal Reserve Banks, alleviating concerns about unrealized losses on HTM bond positions and boosting confidence, urging everyone not to panic and rush to banks.

The collateral will be directly valued at face value without accounting for any book losses, and the margin will be 100% of the face value. The loan rate is one year OIS + 10 bp, currently around 5.08%, with the interest rate fixed at the time of the contract, allowing borrowers to repay early without any penalties.