Circle has proposed the establishment of a full-reserve bank for the cryptocurrency industry. This proposal comes amidst concerns over the fractional banking system and its potential risks.
Fractional banking is a banking system where banks hold only a fraction of their customers' deposits as reserves and lend out the rest to earn interest. A full-reserve bank is a banking system where banks hold all of their customers' deposits as reserves and do not lend them out to earn interest.
In a statement released by Circle, the company confirmed that 100% of deposits from Silicon Valley Bank (SVB) were secure and would be available at banking open the following day.
With the closure of Signature Bank, the minting and redemption of stablecoins would be processed through settlements with BNY Mellon. At the same time, Circle also announced a new transaction banking partner with Cross River Bank to operate the automated minting and redemption process.
Circle expressed its commitment to building a robust and automated $USDC settlement and reserve operations with the highest quality and transparency. The company has advocated for full-reserve digital currency banking that insulates the base layer of internet money and payment systems from fractional reserve banking risk.
The Payment Stablecoin Act, which is actively pursued by Congress, would enshrine in law a regime where stablecoin funds would be held with cash at the Fed and short-term T-Bills. Circle believes that this law is necessary now more than ever to create a truly safe financial system.
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Policy and Regulation