Silicon Valley Bank: US announces plan for SVB crisis – 03/12/2023 – Market

US federal regulators announced on Sunday (12) that they will ensure that all customers of the Silicon Valley Bank (SVB), which went bankrupt on Friday (10), are paid in full, in a race to contain the fallout from the collapse of the financial institution. .

The Federal Reserve (Fed, US central bank), the Federal Treasury and the Federal Deposit Insurance Corporation (FDIC, US bank deposit insurance corporation) announced in a joint statement that “account holders will have access to all their money from on Monday, March 13. No loss associated with the Silicon Valley Bank resolution will be borne by the taxpayer.”

Regulatory agencies also said they would approve a similar program for New York’s Signature Bank, which the government said closed on Sunday.

Signature Bank is also a niche bank, specializing in providing banking services to law firms. SVB operates in the startup segment.

The decision to close the bank was made in conjunction with the New York Department of Financial Services, one of Signature’s regulators. In a statement, New York banking regulators said the move was “in light of market events, monitoring trends and collaborating closely with other state and federal regulators” to protect consumers and the financial system.

The move to hedge deposits came after the FDIC took over the SVB on Friday, placing an account of nearly $175 billion in customer deposits under the regulator’s control. The bank’s failure, the biggest since the height of the 2008 financial crisis, has raised concerns that other finance companies could suffer similar fates as rising interest rates put pressure on the banking sector and nervous depositors consider withdrawing their money.

Customers with deposits of up to $250,000 are insured by the FDIC, but the bank had a large number of accounts over that limit — and there was no guarantee those customers would get their money in full.

That reality rocked the banking sector over the weekend, prompting the government to urgently seek a solution, such as a buyer for the bank.

That prospect roiled the banking sector over the weekend, sending the government scrambling to try to sell the bank to a private buyer or come up with some other solution. It worries policymakers and economists that people with non-FDIC bank accounts at other regional banks could begin to fear for the safety of their money — which could lead them to transfer their money to larger banks that are perceived to be safer. This could escalate the case from a bank failure to a general crisis.

It is this panic scenario that the package announced by the US on Sunday aims to avoid. The measures were made possible through an exception that allows the FDIC — which in general must resolve a bank failure as cheaply as possible — to risk having to shoulder additional costs if there is a threat to the financial system.

The agencies said any losses to the FDIC in supporting uninsured clients would be recovered by special review by banks, “as required by law.”

Simultaneously, the Fed announced that it will create an emergency lending program, with Treasury approval, aimed at providing additional funding for eligible banks to ensure they can “meet the needs of all of their customers.”

Backed by $25 billion of funds that the Treasury originally planned to use for currency stabilization, but now frequently used by the Fed in times of crisis, it will offer one-year loans to banks, credit unions and other eligible institutions that hold bank deposits in exchange of US Treasury bonds and mortgage-backed securities, among others.

These assets will be priced at their original value. Interest rates have risen sharply over the last year, reducing the value of long-term bonds that were bought when interest rates were lower. So the Fed’s new program could provide a way out for institutions that fear big losses if they have to redeem their bonds at current market value.

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.

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.

When IndyMac and Washington Mutual collapsed in 2008, the FDIC found buyers for the assets and kept customer deposits intact. If no buyers take over the SVB.

Earlier on Sunday, before the plan was announced, US Treasury Secretary Janet Yellen ruled out a major bailout. “During the financial crisis [de 2008]there were investors and big banks that were bailed out, and the reforms that were made mean we’re not going to do that again,” he told CBS.