- By Doug Faulkner and Robert Plummer
- BBC news
US authorities took emergency measures on Sunday to support the banking system after Silicon Valley Bank (SVB) and Signature Bank collapsed.
People and companies who have deposited money with the SVB can dispose of all their money from Monday, according to the government.
Regulators also closed New York-based Signature Bank after mounting pressure.
President Joe Biden will address the dramatic weekend in the financial sector later Monday.
In a statement, he vowed to “hold fully accountable those responsible for this mess”.
SVB – which specialized in lending to technology companies – was shut down by regulators who seized its assets on Friday. It was the largest US bank failure since the 2008 financial crisis.
A statement from the US Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) said depositors would be fully protected. The taxpayer will bear no losses from the move, it said.
SVB tried to raise money to close a loss on the sale of assets hit by higher interest rates.
“The US banking system remains resilient and on solid foundations, largely as a result of post-financial crisis reforms that have enhanced safeguards for the banking sector,” the authorities’ joint statement said.
“These reforms combined with today’s actions demonstrate our commitment to taking the necessary steps to ensure that depositors’ savings remain safe.”
Those actions also apply to Signature Bank of New York, which is seen as the most vulnerable institution after SVB, which came under supervision on Sunday.
As part of their moves to restore confidence, regulators also unveiled a new way for banks to access emergency funds.
The Federal Reserve said it would provide relief through a new Bank Term Funding Program, making it easier for banks to borrow from it in a crisis.
SVB was seen as a crucial lender for start-ups in the technology sector. It was the banking partner for nearly half of the U.S. venture capital-backed technology and healthcare companies listed on the stock market last year.
I spoke to people over the weekend with money tied up with the SVB.
One founder told me he was constantly refreshing his online banking page, hoping it would work.
Another said he was sure the government would intervene, but admitted that he would have lost some 40% of the company’s cash overnight.
This statement was therefore welcomed by depositors. But there are those who will frown upon this step.
SVB mainly banked start-ups and venture capitalists in Silicon Valley – the tech elite. And those Silicon Valley elites often have more than a hint of libertarianism in their politics: the default view is that government is slow and too big.
Critics argue that it is with great irony that it is the government that stepped in to save the day. Some may wonder if influential tech bros have been given preferential treatment: capitalism for when things are going well, socialism for when things are not going well.
Therefore, the statement is carefully worded that the taxpayer will not pay for this. Biden will now have to defend the move — and assure members of his own party that guaranteeing depositors was the only way.
Elsewhere, authorities in Canada temporarily took control of the assets of the SVB branch in the country. The top banking regulator said it intended to seek permanent scrutiny.
SVB started as a California bank in 1983 and has grown rapidly over the past decade.
But it came under pressure as higher interest rates made it more difficult for start-ups to raise money through private fundraising or share sales.
In Silicon Valley, the reverberations of the collapse are rife as companies face questions about what it means for their finances.
Paul Ashworth, North America chief economist at Capital Economics, said US authorities had “acted aggressively to avoid contagion”.
“Rationally, this should be enough to prevent a contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age. But contagion has always been more about irrational fear, so we want to stress that there is no guarantee that this will work,” he added.
HSBC has now bought the British branch of SVB.
The Treasury said the deal, which was thrashed all night with HSBC before trading resumed on Monday, did not involve any taxpayer money.
Customers and businesses that were unable to withdraw their funds can now access them normally.
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