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US regulators stated that Silicon Valley Bank depositors would be compensated in full as they sought to stabilize the banking system in the wake of the bank's collapse, announcing emergency funding measures and liquidating a second financial institution.
Sunday, the Federal Reserve unveiled a new lending facility intended to provide additional funding to eligible institutions so that "banks have the ability to meet the needs of all their depositors." The US central bank stated that it was "prepared to address any liquidity pressures that may arise."
The Fed facility is part of a larger effort by regulators, including Treasury secretary Janet Yellen, Fed chair Jay Powell, and Martin Gruenberg of the Federal Deposit Insurance Corporation, to prevent spillovers across the financial system and reassure customers that their money is safe in the wake of the second-largest US bank failure.
The actions come after a weekend defined by a frantic search for a potential buyer for SVB and the closure of New York-based Signature Bank.
The so-called Bank Term Funding Program will grant loans of up to one year to lenders who pledge collateral including US Treasuries and other "qualifying assets," which will be valued at par.
The Fed stated that the initiative will reduce institutions' "need to quickly sell those securities in times of stress" and will be sufficient to protect all uninsured US deposits. The program is supported by the Treasury, which contributed $25 billion. The central bank noted that the discount window, where banks can receive money for a modest fee, remained "open and available."
All depositors of SVB and Signature, which was closed by the New York Department of Financial Services before being placed under FDIC management and marketed for sale, will have access to their funds, according to the regulators on Monday.
Authorities stated on Sunday that no taxpayer damages will result from the resolution of SVB or Signature's deposits. Any shortfall would be covered by a levy on the remaining banking system. They added that stockholders and certain unsecured creditors would not be protected.
According to a number of venture capitalists, Signature was the second most exposed lender after SVB due to its concentrated customer base, considerable exposure to cryptocurrencies and technology firms, and high proportion of uninsured deposits.
90 percent of Signature's $89 billion in deposits were not FDIC-insured at the end of 2022, according to a regulatory filing. As of December 31, around one-fifth of its total deposits involved digital assets.
In a statement released on Sunday, Gary Gensler, chairman of the Securities and Exchange Commission, committed to "investigate and bring enforcement actions" in the case of violations of federal securities law.
A senior US Treasury official told reporters on Sunday that Yellen conferred with US President Joe Biden before approving the plan to activate a "systemic risk exception," allowing all SVB and Signature depositors to access their funds on Monday. About SVB, not enough time had passed for a buyer to emerge and finish a successful auction.
Biden stated in a statement that he was delighted that his economic team had "reached a prompt solution that protects American workers and small businesses and keeps our financial system secure" while “taxpayer dollars are not put at risk”.
While owners and bondholders of the two banks had been "wiped out," the senior Treasury official denied that the move constituted a bailout. The official stated that the "economy remains in good shape" and the financial system's "foundation" is stronger than in 2008.
Stanford University finance professor Anat Admati stated that regulators had no alternative but to bail out Silicon Valley Bank since they had allowed the banking system to become vulnerable again over the past few years.
Admati stated, "When it gets to this point and you are in a hostage situation, there is nothing else you can do. But there is no other word for this other than to call it a bailout."
The action reinforced US authorities' fears about potential spillovers, which prompted the Fed to establish a facility to avert bank runs. The senior Treasury official stated that they observed "similarities" in the conditions of some of SVB and Signature's competitors and wished to guarantee that depositors did not abruptly remove their funds.
Leading lenders for the start-up community and cryptocurrency business, SVB and Signature, were unlikely to be acquired by a competitor bank, according to individuals with direct knowledge of the negotiations and who have been working with SVB and the government.
PNC, a prominent American bank, and RBC, a Canadian bank, were encouraged to bid on SVB but withdrew, according to sources with firsthand knowledge of the situation.
The five major banks in the United States, including JPMorgan and Bank of America, would not be buyers, according to these individuals.
For a sale to make sense for any buyer, the U.S. government would have to cover a portion of their losses, according to an SVB employee.
Separately, the New York-based investment bank Centerview Partners has been engaged to sell SVB's non-deposit-related assets, including its investment bank and capital business, according to people familiar with the situation.
By fLEXI tEAM
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