US organizes ‘material action’ to stop SVB outages

NEW YORK, March 12 (Reuters) – US authorities on Sunday were preparing “material action” to bolster deposits at Silicon Valley Bank (SVB) and try to mitigate any wider financial fallout from the sudden collapse of the technology-based startup-focused lender counter. sources familiar with the matter told Reuters.

Officials in the Biden administration worked all weekend to assess the impact of the bankruptcy of SVB Financial Group (SIVB.O) on Friday, with a particular focus on the venture capital sector and regional banks, the sources said.

Details of an announcement expected on Sunday were not immediately available, but one of the sources said the Federal Reserve could take action similar to what it did to keep banks afloat during the COVID-19 pandemic.

“This will be a material action, not just words,” said one.

US authorities are considering securing all uninsured deposits with SVB and considering an intervention to prevent panic in the country’s financial system, the Washington Post reported, citing three people with knowledge of the matter.

Officials from the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation discussed the idea over the weekend, the report said.

CNBC reported that the Fed and FDIC are discussing two different facilities to manage the fallout from SVB’s shutdown if a buyer doesn’t materialize.

SVB’s collapse has also sparked global reverberations, with the UK government scrambling to contain any fallout from the bank’s UK subsidiary and concerns in countries like Israel and India, where tech companies have relied on the bank.

Earlier, US Treasury Secretary Janet Yellen said she was working with banking regulators to respond after SVB became the largest bank to fail since the 2008 financial crisis.

As fears of wider fallout in the US regional banking sector and beyond grew, Yellen said she was working to protect depositors but ruled out a bailout.

“We want to make sure that the problems that exist in one bank don’t contagion to others that are healthy,” Yellen told CBS’s “Face the Nation.”

“During the financial crisis, there were investors and owners of systemic big banks that got bailed out…

In March 2020, as the coronavirus pandemic and lockdowns caused a financial panic, the Federal Reserve announced a series of measures to maintain the flow of credit by lowering borrowing costs and extending the terms of its direct loans.

By the end of that month, the use of the Fed’s rebate facility skyrocketed to more than $50 billion.

The Fed is considering easing conditions for banks to access the window, Bloomberg News reported on Sunday citing people familiar with the matter, a move that would increase banks’ capacity to meet depositors’ withdrawal requests .

Midway through last week, before the collapse of the SVB, there was no indication that usage was picking up, with data from the Fed showing weekly outstanding balances of $4 billion to $5 billion since the start of the year.

FIND A BUYER

While the Federal Deposit Insurance Corporation (FDIC) protects deposits up to $250,000, there are concerns about SVB deposits above that level, a source said, adding that many smaller companies were at risk of not being able to pay staff.

US officials are also closely monitoring increased withdrawals from other regional banks.

The FDIC, which has been appointed trustee of the SVB, is trying to find another bank to merge with it, people familiar with the matter said Friday.

But with $209 billion in assets, Santa Clara, California-based SVB was the 16th-largest U.S. bank, and some industry executives said such a deal would likely require regulators to issue special guarantees and other considerations.

US House Speaker Kevin McCarthy told Fox News’ Sunday Morning Futures program that President Joe Biden’s administration and the Federal Reserve were working on an announcement before markets open Monday.

The Fed and FDIC did not respond to requests for comment.

COMMUNITY BANKS

Some analysts and prominent investors warned that without a resolution by Monday, other banks could come under pressure.

The FDIC kicked off an auction process late Saturday, Bloomberg reported, citing people familiar with the matter, with final bids due by Sunday afternoon.

The report added that the FDIC was in a rush to sell SVB assets and release some of its uninsured deposits as early as Monday.

Shock waves from the collapse of the SVB were evident in the S&P 500 regional banking index (.SPLRCBNKS) falling 4.3% on Friday to finish the week up 18%, its worst week since 2009.

Signature Bank (SBNY.O) fell about 23%, while San Francisco-based First Republic Bank (FRC.N) fell 15%. Western Alliance Bancorp (WAL.N) was down 21% and PacWest Bancorp (PACW.O) was down 38%. Charles Schwab (SCHW.N) fell more than 11%.

Signature Bank, First Republic Bank, PacWest Bank and Charles Schwab did not immediately respond to requests for comment. Western Alliance Bank declined to comment.

Some banks might try to raise preemptive capital to strengthen their balance sheets or close deals themselves, industry executives said.

When IndyMac and Washington Mutual went bankrupt in 2008, the FDIC found other companies to take over the assets and keep deposits intact. If a buyer is not found for SVB, uninsured savers will likely keep some of the money the FDIC can raise by selling the bank’s assets.

WORLDWIDE DOMINOS

In Britain, where SVB has a local subsidiary, Chancellor of the Exchequer Jeremy Hunt said on Sunday he was working with Prime Minister Rishi Sunak and the Bank of England to “prevent or minimize damage” from the chaos.

“We will be putting plans forward very soon to ensure people are able to meet their cash flow requirements to pay their staff,” Hunt told Sky News.

UK venture capital-backed startups have about £2.5 billion ($3 billion), largely in deposits, “locked up” in the UK subsidiary, according to a weekend survey by an industry association viewed by Reuters.

More than 250 executives from British tech companies signed a letter calling for state intervention, according to a copy seen by Reuters.

Consulting firm Rothschild & Co is exploring options for Silicon Valley Bank UK Limited, two people familiar with the talks told Reuters on Saturday. The BoE has said it is seeking an injunction to place the UK arm in insolvency proceedings.

In Israel, shares on the Tel Aviv Stock Exchange fell more than 4% on Sunday, led by financial firms. Israel’s technology sector is the country’s main growth engine and its relationship with the Silicon Valley region is strong. Many Israeli startups had accounts with SVB, although the amounts are not fully known.

In India, the state technology minister said on Sunday he will meet with start-ups this week to assess the impact of the lender’s collapse.

Reporting by Lananh Nguyen, Paritosh Bansal, Tatiana Bautzer, Nupur Anand, Ira Iosebashvili and Dan Burns in New York, and Pete Schroeder, Jason Lange, Sarah N. Lynch, Rami Ayyub, David Morgan and Andrea Shalal in Washington, Kanjyik Ghosh and Akanksha Khushi in Bengaluru, and Andrew MacAskill, William Schomberg, Amy-Jo Crowley and Pablo Mayo in London; Written by Megan Davies, Alexander Smith, Leslie Adler and Simon Lewis; Edited by Jamie Freed, Deepa Babington and Diane Craft

Our Standards: The Thomson Reuters Principles of Trust.