- Written by Doug Faulkner and Robert Plummer
- BBC News
US authorities took emergency measures on Sunday to shore up the banking system after the collapse of Silicon Valley Bank (SVB) and Signature Bank.
The government said that people and companies who have money on deposit with the SVB will be able to access all their funds from Monday.
Regulators also shut down New York-based Signature Bank after mounting pressure.
President Joe Biden will address the exciting weekend in the financial sector later on Monday.
In a statement, he promised that “those responsible for this mess will be fully held accountable.”
SVB – which specializes in lending to technology companies – was shut down by regulators who seized its assets on Friday. It was the biggest failure of a US bank since the financial crisis of 2008.
A statement from the US Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) said depositors would be fully protected. She said the taxpayer would not bear any losses from the move.
SVB has been scrambling to raise funds to bridge the loss from the sale of assets affected by the high interest rates.
“The US banking system remains resilient and on a solid footing, due in large part to reforms introduced after the financial crisis that ensured better safeguards for the banking industry,” the authorities’ joint statement read.
“These reforms, combined with today’s actions, demonstrate our commitment to taking the necessary steps to ensure that depositors’ savings remain safe.”
Those measures also apply to Signature Bank of New York, seen as the most vulnerable institution after SVB, which came under regulatory scrutiny on Sunday.
And as part of their moves to restore confidence, regulators also unveiled a new way to give banks access to emergency funds.
The Fed said it would provide assistance through a new term bank financing program, making it easier for banks to borrow from it in a crisis.
SVB was seen as an important lender to early stage businesses in the technology sector. It was the banking partner for nearly half of the US venture-backed technology and healthcare companies that listed on the stock markets last year.
I’ve talked to people with money stuck in SVB over the weekend.
One of the founders told me that he has been constantly updating his online banking page, hoping it will work.
Another said he was confident the government would step in, but admitted he may have lost about 40% of the company’s money overnight.
Depositors welcomed this statement. But there are those who will raise eyebrows in this step.
SVB was mainly financing startups and Silicon Valley venture capitalists – the tech elite. And those Silicon Valley elites tend to have more than a streak of liberalism in their politics: the standard view is that government is too slow and too big.
Ironically, critics argue, it was the government that stepped in to save the day. Some will wonder if the techno-influencers have been given preferential treatment: capitalism when things go well, socialism when they don’t.
That is why the statement was carefully worded that taxpayers would not pay for it. Biden will now have to defend the move – and reassure members of his party that a depositor guarantee is the only way.
Elsewhere, authorities in Canada have temporarily taken control of the assets of the SVB chapter in the country. The largest banking regulator has said it intends to seek permanent control.
SVB began as a bank in California in 1983 and has expanded rapidly over the past decade.
But it has come under pressure because high interest rates have made it difficult for startups to raise money through private fundraising or stock sales.
In Silicon Valley, echoes of the crash have spread far and wide as companies face questions about what it means for their finances.
Paul Ashworth, chief North America economist at Capital Economics, said US authorities “acted aggressively to prevent the spread of infection”.
“Logically speaking, this should be enough to prevent any infection from spreading and closing more banks, which can happen in the blink of an eye in the digital age. But infection has always been about irrational fear, so we maintain that there is no guarantee,” he added. This will work.”
Meanwhile, HSBC bought the UK arm of SVB.
The Treasury said the deal, which was struck with HSBC over the night to be completed before trading resumes on Monday, did not include taxpayer money.
Customers and businesses who were unable to withdraw their funds will now be able to access them as normal.
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