Silicon Valley Bank: Bankrupt bank’s money safe, US government says

  • By Doug Faulkner and Robert Plummer
  • BBC News

US authorities on Sunday took emergency measures to shore up the banking system after the collapse of Silicon Valley Bank (SVB) and Signature Bank.

People and businesses that have money deposited with the SVB will be able to access all of their money from Monday, the government said.

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 promised to hold “those responsible for this mess fully accountable”.

SVB – which specializes in lending to technology companies – was shut down by regulators who seized its assets on Friday. It is the largest U.S. bank failure since the 2008 financial crisis.

A statement from the US Treasury, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) said depositors would be fully protected. The taxpayer will bear no loss from the move, he said.

SVB was struggling to raise funds to make up for a loss resulting from the sale of assets hit by higher interest rates.

“The U.S. banking system remains resilient and on solid foundations, largely thanks to the reforms that were made after the financial crisis and which provided better 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 the safety of depositors’ savings.”

These actions also apply to Signature Bank of New York, considered the most vulnerable institution after SVB, which came under regulatory scrutiny on Sunday.

As part of their efforts to restore confidence, regulators also unveiled a new way to give banks access to emergency funds.

The Federal Reserve said it would offer assistance through a new bank term funding program, making it easier for banks to borrow in times of 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 venture-backed U.S. tech and healthcare companies that went public last year.

I spoke to people with money stuck in SVB this weekend.

A founder told me that he was constantly updating his online banking page, hoping it might work.

Another said he was confident the government would intervene, but admitted he could have lost around 40% of the company’s cash overnight.

This statement was therefore well received by the depositors. But there are those who frown at this move.

SVB has primarily funded start-ups and venture capitalists from Silicon Valley – the tech elite. And these Silicon Valley elites tend to have more than a wave of libertarianism in their politics: the all-encompassing view is that government is slow and too big.

Critics say it was with great irony that it was the government that stepped in to save the day. Some will wonder if influential tech bros got preferential treatment: capitalism when it’s good, socialism when it’s bad.

This is why the statement is carefully worded that taxpayers will not pay for it. Mr Biden will now have to defend that decision – and reassure members of his own party that guaranteeing depositors was the only way.

Elsewhere, Canadian authorities have temporarily taken control of SVB’s branch assets in the country. The main banking regulator said it intended to seek permanent oversight.

SVB started as a California bank in 1983 and has grown rapidly over the past decade.

But it has come under pressure as higher interest rates have made it harder for start-ups to raise funds through private fundraising or stock sales.

In Silicon Valley, the repercussions of the collapse have become widespread as companies face questions about what it means for their finances.

Paul Ashworth, chief economist for North America at Capital Economics, said US authorities had “acted aggressively to prevent a contagion from developing”.

“Rationally, that should be enough to stop any contagion from spreading and destroying more banks, which can happen in the blink of an eye in the digital age. But contagion has always been more of an irrational fear, we would like therefore stress that there is no guarantee that it will work,” he added.

Meanwhile, HSBC bought the UK branch of SVB.

The Treasury said the deal, which was negotiated with HSBC overnight to be completed before trading resumes on Monday, did not involve any taxpayer money.

Customers and businesses that were unable to withdraw their money will now be able to access it normally.

Leave a Comment