U.S. authorities unveiled sweeping measures on Sunday to fully bail out depositors’ money from bankrupt Silicon Valley Bank and pledge to help other institutions meet customer needs as they announced a second tech-friendly bank to be launched by regulators. was closed.
In a joint statement, financial institutions, including the US Treasury Department, said that starting Monday, March 13, SVB depositors will have access to “all their money” and that US taxpayers will not have to foot the bill.
The U.S. Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and Treasury said depositors at Signature Bank, a New York-based regional-sized lender with significant cryptocurrency exposure, which closed on Sunday after its share price fell, also would be “made whole.”
And in a potentially significant development, the Fed announced it would make additional funding available to banks to help them meet depositors’ needs, including withdrawals.
“We are taking decisive action to protect the U.S. economy by strengthening public confidence in our banking system,” the agencies said in their joint statement.
“The US banking system remains resilient and on solid foundations,” largely due to reforms implemented after the 2008 financial crisis that introduced new safeguards for the banking sector.
“These reforms combined with today’s actions demonstrate our commitment to taking the necessary steps to ensure that depositors’ savings remain safe.”
The FDIC guarantees deposits – but only up to $250,000 per customer and per bank.
However, the federal banking law would allow the FDIC to protect uninsured deposits if failure to do so would create systemic risks, the Washington Post reported.
Regulators on Friday took control of SVB — a major lender to startups in the United States since the 1980s — after a massive run on deposits left the medium-sized bank unable to stay afloat.
Hours before Sunday’s joint statement, Treasury Secretary Janet Yellen said the government wants to avoid financial “contagion” from the SVB implosion as it rules out a bailout.
With the bank’s future, and its billions in deposits, up in the air, officials from the three agencies scrambled to devise a solution just hours before Asian financial markets opened, and to discuss a potential financial avoid panic.
Yellen told CBS that the U.S. government wanted to “make sure that the problems that exist in one bank don’t contagion others that are healthy.”
She added that the government was working with the FDIC to “fix” the situation at SVB, where about 96 percent of deposits are not covered by the FDIC’s repayment guarantee.
Investors penalized the banking sector as a whole on Thursday after SVB announced the extent of the problems the day before, but shares of some larger banks made gains on Friday.
Despite efforts by US officials to secure financial markets, regional lenders remained under pressure.
They include First Republic Bank, which collapsed nearly 30 percent in two sessions on Thursday and Friday, and Signature Bank, which lost a third of its value since Wednesday evening — and closed on Sunday.
Tokyo shares opened lower on Monday amid concerns over overseas, with the benchmark Nikkei 225 index falling 0.92 percent.
No rescue operation
Since Friday, there have been calls from the technical and financial sector for a rescue operation.
Yellen said reforms after the 2008 financial crisis meant the government was not considering this option for SVB.
“During the financial crisis, there were investors and owners of systemic big banks that got bailed out…
In their joint statement on the latest banking troubles and efforts to protect SBV and Signature depositors, the agencies stressed that shareholders and certain unsecured debt holders will not be protected and that senior management has been removed.
After the 2008 bankruptcy of Lehman Brothers and the ensuing financial collapse, U.S. regulators required major banks to hold additional capital in case of trouble.
The US and European authorities also regularly organize ‘stress tests’ to expose vulnerabilities at the largest banks.
The implosion of the SVB represents not only the largest bank failure since Washington Mutual in 2008, but also the second-largest ever for a US retail bank.
Little known to the general public, SVB specialized in financing startups and had become the 16th largest US bank by assets: by the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.
The company previously boasted that “nearly half” of technology and life science companies with US funding were with them, leading many to worry about the potential ripple effects of the collapse.
(Except for the headline, this story has not been edited by NewsMadura staff and is being published from a syndicated feed.)
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