The US government is concerned about the unlikely yet destabilizing possibility of nationwide bank runs. The Federal Reserve and Treasury already bailed out two banks last week, including the second-largest bank failure in the country’s history: Silicon Valley Bank. Now, the US Treasury is considering a backstop of all bank deposits nationwide.

The Federal Reserve has introduced a new Bank Term Funding Program (BTFP) with up to $2 trillion in extra liquidity. The Fed’s BTFP allows banks to borrow cash equivalents at favorable rates for up to 12 months to survive bank run-induced panics.

Needless to say, with the scope and scale of these actions, the mood of US bank depositors remains disquieted.

The power to backstop all US bank deposits

The Treasury Department is looking at ways to support smaller banks. Bloomberg reported that staff at the Treasury are considering an unprecedented guarantee of all US bank deposits, including account balances exceeding the FDIC’s $250,000 insurance limit. The guarantee could, if approved, cover deposits at US banks of all sizes, including regional and community banks.

Treasury Secretary Janet Yellen said the Treasury could cover deposits if bank runs were to pose a contagion risk, but she hasn’t yet made that commitment. During a speech she gave at an American Bankers Association event, Yellen further clarified that she didn’t intend to favor “specific banks or classes of banks.”

The Treasury could dip into a fund created in the 1930s called the Exchange Stabilization Fund. It usually uses the Exchange Stabilization Fund to trade foreign currencies and loan money to foreign governments. However, with relevance to a nationwide bank guarantee, the Treasury has also used it to make emergency loans to banks.

Read more: Blame the Fed: David Sacks and the VC who cried bank-run

Some members of Congress expressed support for an increase in the FDIC insurance limit. The House of Representatives’ Freedom Caucus opposed the move, saying it would encourage banks to continue engaging in risky behavior at public expense.

Regardless, the Treasury is studying legal avenues that could bypasss Congress altogether on such an initiative. It’s looking for the fastest path to establish an emergency guarantee facility in order to support banks facing bank runs that could harm their ability to fulfill withdrawal requests.

The Mid-Size Bank Coalition of America requested the move, citing a potential financial crisis. They asked regulators to lift the FDIC’s current $250,000 cap on deposit insurance.

Read more: Bitcoin rallies amid Credit Suisse, Silicon Valley Bank failures

Major banks collapse this month

• Silvergate Bank suffered a bank run after FTX and Alameda Research filed for bankruptcy. The two companies founded by Sam Bankman-Fried had held accounts at Silvergate.
• Another large bank, Silicon Valley Bank, also suffered a $42 billion bank run fueled by social media rumors. This run drained its cash reserves. The FDIC declared it a systemic risk to the US banking system. It backstopped all deposits in full — even accounts holding more than $250,000.
• The FDIC also backstopped another failed bank this month: Signature Bank.
• As Credit Suisse succumbed to one of the largest bank failures in world history, the Swiss government, alongside the European Union, orchestrated its bailout by UBS.

Many banks are teetering on the brink of bankruptcy this month. Publicly traded bank stocks saw steep drops in price. Smaller banks also saw an upswing in withdrawals, sparking fears that the FDIC would ignore runs on small banks in favor of giant, systemically important banks.

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In her first prepared speech devoted to the topic of digital assets, US Treasury Secretary Janet Yellen laid out a path to regulate crypto. She also stated that a US-issued central bank digital currency (CBDC) could take years to develop, Bloomberg reports.

In last week’s speech at the American University in Washington, DC, Yellen said that any regulations will have to be “tech neutral.” Yellen elaborated that digital asset issuers and service providers should focus on protecting consumers against fraud and misinformation, as well as adhere to tax laws.

The Treasury Secretary listed decentralization ⏤ the lack of dependence of crypto assets on any single firm ⏤ as a strength of the blockchain industry.

Read more: Yellen: No ‘significant’ Russian crypto sanction evasion found

Yellen said that transparency and prevention of systemic risks and excesses in the crypto-asset industry remain concerns for regulators. She cited the need to prepare for changes to the structure of US financial systems due to the rise in crypto assets.

“While this could make markets less vulnerable to the failure of any particular firm, it is critical to ensure we maintain visibility into potential build-ups of systemic risk and continue to have effective tools for tamping down excesses where they arise,” the Treasury Secretary remarked.

Biden seeks recommendations to regulate crypto

President Biden has ordered regulators to conduct a six-month study on digital currencies and come up with recommendations for regulation. The study will include crypto assets like Bitcoin, stablecoins, and a hypothetical CBDC.

Politicians have expressed concern about the United States’ ability to keep up with the latest innovations in the blockchain industry. They have said that the rise of competing currencies like China’s digital yuan (e-CNY) could damage the U.S. dollar’s status as the world’s reserve currency.

Yellen says President Biden’s order for a six-month study of crypto could lead to a clearer roadmap to regulate crypto. “I won’t predict where this work will take us, but that does not mean we are navigating without a compass. Digital assets may be new, but many of the issues they present are not,” she said in her speech.

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Out now: the first four episodes of our ongoing investigative podcast series Innovated: Blockchain City.

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US Treasury Secretary Janet Yellen said Wednesday that no “significant” Russian sanction evasion using cryptocurrency has been detected by federal authorities.

In a separate hearing that day, legislation was introduced that would give President Biden the power to force US-based crypto exchanges to stop doing business with Russian-based users, Law360 reports.

Yellen testified before the House Financial Services Committee that while crypto’s potential for sanction evasion remains a concern, its value in terms of facilitating Russia’s large economy is minimal. The Treasury Secretary made it clear the public nature of blockchains limit the risk of sanction evasion and added that regulations imposed on crypto exchanges provide further transparency.

“We haven’t seen significant evasion through crypto so far, but we’ll monitor carefully and use our authorities that we do have to make sure that this isn’t a major avenue for evasion,” Yellen said.

In March, Russia’s central bank made moves to expedite crypto adoption. Days later, top blockchain analytics firm Chainalysis testified at a US Senate Banking Committee that no material evasion by Putin or his followers had been identified.

Former Financial Crimes Enforcement Network (FinCEN) acting director Michael Mosier also expressed doubts over crypto’s ability to facilitate the scale of transactions a major country like Russia would need to keep its economy running.

Read more: [Russia hypothetically accepts Bitcoin for oil and gas — if you’re its ‘friend’]

On Wednesday, the same day of Yellen’s testimony, President Biden’s administration announced additional Russian sanctions in light of apparent war crimes in Kyiv’s suburb Bucha. Tighter sanctions against Russia’s Sberbank and Alfabank were introduced, along with sanctions against Putin’s inner circle — including his two adult daughters, Maria Vorontsova and Katerina Tikhonova.

And again, on the same day, House Democrats introduced legislation that would allow Biden to force US-based crypto exchanges to stop facilitating transfers for Russian-based users. The bill would further grant the president the ability to sanction overseas exchanges that continue to allow these Russian-based transfers, Law360 reports.

Some major crypto exchanges have been less than willing to impose a ban on Russian users, whether they’d been sanctioned or not. Coinbase and Kraken have both rejected calls to comply, with the former’s chief Brian Armstrong stating “everyone deserves access to basic financial services unless the law says otherwise.”

However, Armstrong clarified that if the US government were to enforce a blanket ban, it would be compelled to follow through.

Crypto sanction evasion has spooked the EU, too

Yellen’s testimony before Congress on Wednesday occurred hot on the heels of growing international action to regulate crypto. Fearing sanction evasion, the European Union has green-lit sweeping cryptocurrency laws that are soon set to pass.

The new rules would compel crypto firms to collect and hand over details of those involved in transfers, including individuals who transact with their customers but may not be users themselves. This is regardless of the size of the transaction.

The EU is also keen to look into regulating “unhosted wallets” (a term for regular, non-custodial crypto addresses) and anonymity-focused cryptocurrencies like Monero and Zcash.

These blockchains provide layers of anonymity that make it difficult for authorities to track illegal activity. In early March, major US think tank Brookings rang alarm bells over the use of Monero and Zcash for evading sanctions.

But the EU’s interest has caused many in the crypto industry to voice their concerns over regulating unhosted wallets, including top exchange Coinbase.

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Out now: the first four episodes of our ongoing investigative podcast series Innovated: Blockchain City.

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