Depositors of the collapsed Silicon Valley Bank (SVB) got a reprieve on Sunday after federal regulators assured that bank’s deposits will get a backing, minimizing the impact of the second-largest bank failure in U.S. history.
SVB, which was shut down on Friday, sent shock waves across markets as uncertainty swelled about trapped depositors’ fund. But the decision, which was announced on Sunday, has put calm on the whirlwind.
“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” The U.S. Treasury, the Federal Reserve and the Federal Deposit Insurance Corp., said in a joint statement Sunday evening.
According to the agencies, the government would back Silicon Valley Bank deposits beyond the federally insured ceiling of $250,000. SVB holds $209 billion in assets and more than $175 billion in deposits, making it the 16th largest bank in the US.
The agencies said that as part of the intervention, senior management of SVB will be removed.
SVB UK, which holds around £5.5 billion ($6.66 billion) in loans and around £6.7 billion ($8.11 billion) worth of deposits, would be purchased the British bank HSBC for just £1 ($1.21). A statement from U.K. finance minister Jeremy Hunt said the government has worked urgently to deliver on the promise of protecting the tech sector by finding a solution that will provide SVB UK’s customers with confidence.
“Today the government and the Bank of England have facilitated a private sale of Silicon Valley Bank UK; this ensures customer deposits are protected and can bank as normal, with no taxpayer support. I am pleased we have reached a resolution in such short order,” he said.
The US agencies have intervened without congressional action, following the invocation of “systemic risk exception,” by Washington officials. Systemic risk exception allows for the joint approval from the Federal Reserve, the FDIC and the Treasury in consultation with Biden.
US President Joe Biden said late Sunday that he was pleased with the move by the US agencies.
“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” he said in a statement. “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
The collapse of Silicon Valley Bank exposed several tech companies to risk of losing their funds parked in the bank. Streaming company Roku said it had 26% of its $1.9 billion total cash stashed in the troubled bank. Some 250 British tech CEOs had warned on Sunday that SVB’s failure would present an existential threat to startups and backers. The U.K. deal will likely calm markets and nerves of start-ups and their backers.
NBC reported that several SVB’s customers in the US and the UK breathed sigh of relief following the regulators’ announcement. Some of them had frozen their operations in anticipation of what would come next for a bank that held much of their assets.
The federal agencies also took over Signature, a New York-based crypto-financing bank, which also ran into trouble. They said on Sunday that a similar guarantee for Signature Bank depositors would be instituted in the process of shutting it down.
The SVB failure, which is the biggest in the US since 2008, has triggered concern about the wellbeing of other banks. A senior Treasury official told reporters Sunday that regulators are watching other banks that may have similar issues. NBC reported the official, who did not rule out the possibility of finding a buyer for the troubled banks, as saying that as part of coordinated interagency efforts to backstop any further bank failures, the Fed has set up an emergency lending program to give banks expanded and quick access to funds “in times of stress.”
