The Bank Charter Wars: How Circle, Erebor, and the Fed Are Rewriting Money Moves

Behind the scenes of a financial power shift where stablecoins, Fed access, and VC-backed banks are quietly fighting for control of the future of money.

It’s March 2023. Mary Daly, president of the San Francisco Fed, is reportedly unaware that one of the largest banks under her watch is on the verge of collapse. Silicon Valley Bank, deeply tied to the tech economy and long viewed as a cornerstone of innovation finance, is carrying a massive unrealized loss. The setup is simple. When interest rates were near zero, SVB ballooned its balance sheet with low-yielding, government-backed mortgage bonds. As rates rose, those bond values collapsed. Management used “Held to Maturity” accounting to hide the losses in plain sight, a move that was technically legal but misleading at best. The hole was transparent to anyone who knew where to look. The bank investor sharps saw it. They weren’t insolvent yet, but one liquidity shock would be enough. A tinder pile looking for a match.

That spark came from within their own circle (not that Circle).

Management had been working on a plan. They had partnered with top-tier investment bankers to raise capital and unwind part of the bond portfolio. The math was tight, plug the gap and right the ship before a liquidity scare happened. The problem was timing, because the capital wasn’t secured yet. It was all just on paper. Before finalizing the raise and putting real cash in the bank, they previewed the deal to their largest customers, the VCs, to see if they wanted to participate. The very same VC firms held enormous influence over the bank’s deposit base. They were the people with every incentive to protect their own liquidity first. The wrong eyes saw the pitch, and the match was lit.

Allegedly, word reached Peter Thiel’s camp and others. Allegedly, they saw the gap. Allegedly, they saw the capital hole. And they said to themselves some version of, “this thing’s insolvent.” And while I wasn’t on the calls, the message was clear enough: pull the funds. This thing is going under. The companies within the Silicon Valley ecosystem acted fast. Nearly 40% of SVB’s deposits were gone within hours. It became one of the fastest bank runs in U.S. history. And just like that, the bank that had been around for decades was gone in a snap.

And yet the real irony was just beginning.

Caught in the collapse was Circle, a company building programmable dollars, backed by short-term Treasuries and designed to function like digital cash. At the time, Circle held $3.3 billion of its $40 billion in USDC reserves inside SVB. That was 8% of the stablecoin’s total backing. The reserves were just like the Hells Angels in A Bronx Tale’s bar scene: "now you’s can’t leave." As panic spread, USDC de-pegged and fell to $0.87 on Coinbase. The most stable of stablecoins had broken the buck. Over the weekend, Coinbase paused redemptions, citing uncertainty in the banking system. The peg was only restored after the Treasury, the Fed, and the FDIC stepped in and guaranteed all deposits at SVB.

And within forty-eight hours, the most regulated stablecoin in the country nearly failed. Not because of crypto leverage. Not because of a protocol flaw. Because Circle did not have custody of its own reserves. Because it did not have access to a Fed master account. Because it could not tap the discount window. A billion-dollar monetary protocol built to represent stability was dependent on the solvency of someone else’s bank.

The token held. The TradFi bank infrastructure did not. And in that moment, the mission became obvious to the Silicon Valley ecosystem. Get the charter, get the custody, get the access to the Fed … or risk it all the next time the system breaks.

Why is this defining the tidal wave of crypto company bank charter rushes and what does it mean for the future of banking? Read on …