Silicon Valley Bank bankruptcy and Stablecoins stability

Luca Galati and Francesco Capalbo

International Review of Financial Analysis, 2024, vol. 91, issue C

Abstract: To what extent does the collapse of a commercial bank spread contagion across cryptocurrency markets? How do markets behave around bankruptcy if digital assets remain stuck within the bank and cannot be withdrawn? We use a BEKK model to examine contagion effects across major digital assets during the Silicon Valley Bank (SVB) collapse period in early March 2023. We find evidence of contagion across major stablecoins and Bitcoin. We also examine the price action when nearly all withdrawals at SVB were prohibited. We find substantial abnormal movements in stablecoin cumulative returns and traded volumes, indicating a “flight to safety” from less to more authoritative and trusted stablecoins. The implications for practitioners and policymakers are discussed.

Keywords: Bank failure; Digital finance; Financial contagion; Volatility spillovers; Stablecoins (search for similar items in EconPapers)
JEL-codes: D47 F31 F61 G14 G41 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:91:y:2024:i:c:s1057521923005173

DOI: 10.1016/j.irfa.2023.103001

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