SVB's March 2023 implosion represents not only the largest bank failure since Washington Mutual in 2008, but also the second largest failure ever for a US retail bank
Washington (AFP) - President Joe Biden was set to try and reassure the world of the resilience of the US banking system Monday, as US and European authorities scrambled to prevent any contagion from the abrupt failure of Silicon Valley Bank.
US federal authorities stepped in to ensure depositors still had access to their funds at SVB and regulators took over a second troubled lender.
In Britain, banking giant HSBC bought SVB’s UK division for just £1 ($1.2) in a rescue deal overseen by the Bank of England and the government. However, French and German authorities said there were no risks to their financial systems.
In a joint statement on Sunday, the US Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Treasury Department said SVB depositors would have access to “all of their money” starting Monday and that American taxpayers will not have to foot the bill.
They added that depositors in Signature Bank – a New York-based regional-size lender with significant cryptocurrency exposure that was shuttered on Sunday after its stock price tanked – would also be “made whole.”
US Treasury Secretary Janet Yellen, pictured in Washington in March, said reforms implemented after the 2008 financial crisis meant the government would not bail out the failed Silicon Valley Bank
The Fed announced it would make extra funding available to banks to help them meet the needs of depositors, which would include withdrawals.
Biden was to deliver remarks at 9:00 am (1300 GMT) on safeguarding a “resilient” banking system and “protecting our historic economic recovery,” the White House said.
“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Biden said late Sunday.
SVB – a key lender to startups across the United States since the 1980s – collapsed after a sudden run on deposits, prompting regulators to seize control Friday.
- Markets fall further -
The British government’s SVB UK rescue deal also guarantees deposits of customers, which includes major businesses in the technology and life science sectors.
“This (deal) ensures customer deposits are protected and can bank as normal, with no taxpayer support,” said British finance minister Jeremy Hunt, who had warned a day earlier that SVB’s collapse posed a serious risk to the UK’s tech sector.
US regulators and banking officials are mulling a variety of emergency options for collapsed Silicon Valley Bank, but authorities ruled out a bailout of the key lender to US startups since the 1980s
Germany’s finance watchdog said the “distressed situation” of SVB’s German branch “does not pose a threat to financial stability.”
French Finance Minister Bruno Le Maire said: “I don’t see any risk of contagion.”
However, European stock markets fell deeper into the red on Monday and most Asian indices finished lower, with banks taking a hit.
“The contagion risk remains for small banks with highly rate-sensitive clients,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
- Avoiding contagion -
Little known to the general public, SVB specialized in financing startups and had become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.
Hours before Sunday’s joint statement, Treasury Secretary Janet Yellen told CBS that the US government wanted “to make sure that the troubles that exist at one bank don’t create contagion to others that are sound.”
Since Friday, there have been calls from the tech and finance sectors for a bailout, which Yellen ruled out.
Yellen said reforms made after the 2008 financial crisis meant the government was not considering this option for SVB.
And in their joint statement, US federal agencies stressed shareholders and certain unsecured debtholders will not be protected.
Fed officials said “investors in those two banks will lose everything. Senior management of those two banks will bear losses and be removed.”