youhe US government announced that all customers of the failed Silicon Valley Bank (SVB) will have access to their funds on Monday morning, including deposits worth more than the $250,000 limit for Federal Insurance Corporation insurance. Deposit Insurance (FDIC).
“This step will ensure that the US banking system continues to perform its vital functions of protecting deposits and accessing credit to households and businesses in a manner that promotes strong and sustainable economic growth,” said the Treasury Department, the Federal Reserve and FDIC. in a joint statement Sunday night.
The move supports $175 billion held in the bank, about 85% of which was uninsured, according to recent SVB regulatory filings. In addition, the Federal Reserve announced that it was creating a new line of credit for the country’s banks to protect bank customers and prevent the collapse of other small and regional banks.
The authorities added that taxpayers will not bear any costs for losses associated with the bank’s liquidation and that SVB’s senior management would be removed. The statement also said the agencies were extending similar protection to depositors at Signature Bank of New York, which was shut down by state regulators on Sunday.
The move comes after some on Wall Street and Silicon Valley warned that the collapse of SVB could cause greater economic problems if those with more than $250,000 in their accounts lost money or saw their funds tied up for weeks or months while the payments were settled. bank assets.
SVB catered to tech startups, and many had millions or tens of millions on deposit with the bank, money they used to run their businesses and pay staff. One startup founder called the insured amount “silly change” for most depositors, estimating that hundreds or even thousands of startups had uninsured cash in SVBs.
How the federal government is responding
Before Sunday’s joint statement, little was known about the federal government’s response to the fallout from Silicon Valley Bank, which began Friday. Treasury Secretary Janet Yellen said Sunday morning that the federal government would not bail out Silicon Valley Bank, but is working closely with banking regulators to help protect the thousands of depositors who are worried about losing their money.
“We are very aware of the problems depositors will have, many of them are small businesses that employ people across the country,” Yellen said in an interview with CBS’s Face The Nation. “We are certainly working to address the situation in a timely manner.”
Silicon Valley Bank, founded nearly 40 years ago, is the 16th largest bank in the country. Its collapse, the second largest bank failure in US history, sent shockwaves through the financial system and rocked the technology industry. But Yellen tried Sunday to reassure Americans that the fallout does not pose a systemic risk. “The US economy is built on a safe and sound banking system,” he said. “Americans should feel confident that the banking system is safe and sound.”
Silicon Valley Bank’s collapse was largely related to the Federal Reserve’s series of ongoing interest rate hikes designed to cool the economy and fight inflation, Yellen said. The bank ran into trouble when its depositors panicked and started withdrawing their money and the bank had to sell bonds at a loss of $1.8 billion to cover the withdrawals. Many of the bank’s assets, such as bonds and mortgage-backed securities, also lost market value as interest rates rose.
Some economic analysts have said the problems at SVB were also due to the recent spate of challenges for technology companies, which have seen share prices fall over the past 18 months, prompting mass layoffs across the industry. But even though the bank primarily caters to tech workers and VC-backed companies, Yellen stressed that the high interest rate environment is the most likely reason for the fallout. “Problems with the tech sector are not at the heart of this bank’s problems,” Yellen said.
He stressed that the response would be very different to the financial crisis of 2008, when rescued several of the largest banks. “Let me make it clear that during the financial crisis, there were investors and owners of large systemic banks that were bailed out … and the reforms that were put in place mean we’re not going to do that again,” he said. “But we are concerned about depositors and we are focused on trying to meet their needs.”
He added that he expects regulators to consider “a wide range of available options”, including the acquisition of SVB by another institution. So far, no buyer has stepped forward, but Bloomberg reports that SVB Securities, the bank’s investment banking arm, is exploring ways to buy the company.
Calls to rescue depositors
The move to make depositors whole follows calls from investors and lawmakers for the federal government to step in to prevent other banks from coming under pressure.
“We must ensure that all deposits that exceed the FDIC’s $250,000 limit are honored,” said Eric Swalwell, a Democratic congressman from California, wrote On twitter. “Banking is about trust. If depositors lose confidence in the safety of their deposits of more than 250k, then we are in trouble.”
Billionaire hedge fund investor Bill Ackman issued one of the most urgent calls for the government to step in and guarantee all of Silicon Valley Bank’s deposits, warning that the US could experience a run on the banks in which large numbers of depositors they would attempt to withdraw your funds simultaneously.
“The unintended consequences of the government failing to guarantee SVB deposits are wide and deep and must be considered and addressed before Monday,” he said. wrote On twitter.
President Joe Biden did not publicly address the situation during his weekend trip to Wilmington, Del., but told reporters Sunday night that he would comment on the matter Monday morning.
Biden also spoke with California Gov. Gavin Newsom on Saturday about “efforts to address the situation.” The White House did not provide additional details on next steps and did not respond to a request for comment.
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