Authorities are looking for a buyer for the SVB bank and are trying to stop the crisis in the sector – 03/12/2023 – Market

Throughout this weekend, US authorities are trying to find ways out of the crisis generated by the collapse of SVB (Sillicon Valley Bank), such as finding a buyer for the institution and trying to increase guarantees on bank deposits.

The fear is that, without a clear answer, other account holders will decide to withdraw their money from banks, especially smaller ones, generating a bank run and a systemic crisis.

SVB collapsed after customers, worried about the bank’s financial health, began withdrawing their deposits. The move led to a loss of more than $100 billion in market value by US banks.

There is an expectation that the US government will announce a weighty measure this Sunday (12), to avoid greater problems in reopening markets on Monday (13).

At the same time, the FDIC (US Federal Deposit Insurance Corporation) is trying to find a buyer for the SVB, according to sources interviewed by Reuters. Until the morning of this Sunday (12), however, there was no information that an agreement would be close to being closed.

Some industry executives said, on condition of anonymity, that such an agreement would require special guarantees for the deal from regulators.

With US$ 209 billion in assets, SVB was the 16th largest bank in the US, which makes the list of possible buyers capable of closing a deal in a few days small.

Another sensitive issue is the guarantee on deposits. On Friday, the FDIC said it would protect deposits of up to $250,000, but sums above that amount, which represent 85% of SVB accounts, were left unsecured.

When IndyMac and Washington Mutual collapsed in 2008, the FDIC found buyers for the assets and kept customer deposits intact. If no buyer takes over the SVB, unprotected deposits will likely have to be paid out of whatever money the FDIC is able to raise from the sale of the institution’s assets.

The FDIC and the Fed are considering creating a fund that would allow regulators to cover a larger share of deposits at troubled banks, Bloomberg reported. The new model is being discussed with bank executives, and could help contain an eventual wave of panic.

However, it is not clear whether there is political support in the country to create a way to support the SVB.

This Sunday (12), Janet Yellen, secretary of the US Treasury, said she is working on the issue, but has ruled out a large bailout. “During the financial crisis, there were big investors and big banks that were bailed out, and the reforms that were made mean we’re not going to do that again,” she told CBS.

“But we are concerned with account holders and focused on trying to meet their needs”, he added, without detailing how far this help can go.

Yellen also reinforced that she considers the American banking system safer and more solid today than before the 2008 crisis.

Democratic Senator Robert Menendez, a member of the Senate Banking Committee, said he was against a bailout. “I’m not ready to offer them a ransom to any extent,” he told NBC.

Kevin McCarthy, Speaker of the US House of Representatives, said on Sunday that he believes the Fed and the Treasury Department have the necessary tools to deal with the issue. “They know the seriousness of this, and they are working to come up with some announcement before the markets open,” he said in an interview with Fox News.

“A crash like that of the SVB is unlikely to extend to large banks,” assesses Kroll, a risk analysis company, in a statement. However, smaller banks can get into trouble if they come under public distrust.

Bill Ackman, a billionaire who manages hedge funds, said on Saturday that a failure to protect all account holders could lead to a wave of withdrawals. “These withdrawals will dry up the liquidity of community and regional banks,” he warned on Twitter.

The SVB’s problems stem from a decision to put $91 billion of its deposits into long-term securities, such as mortgage and US Treasury bonds, which were considered safe but are now worth $15 billion less than when the bank bought them after the Federal Reserve (the US central bank) aggressively raised interest rates.

The institution is the banking partner of half of US technology and life science companies backed by venture capital, and is a major presence in providing credit lines to the private equity sector.