Silicon Valley Bank: Money in a bankrupt bank is safe, says the US government

  • By Doug Faulkner & Robert Plummer
  • BBC news

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

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

Regulators also shut down New York-based Signature Bank after mounting pressure.

President Joe Biden will address the dramatic weekend in the financial sector later on Monday.

In a statement, he promised to hold “those responsible for this mess fully accountable”.

SVB – which specialized in lending to technology companies – was shut down by regulators who seized its assets on Friday. It was the biggest failure of a US bank since the 2008 financial crisis.

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

SVB struggled to raise money to cover a loss from the sale of assets affected by higher interest rates.

“The U.S. banking system remains resilient and on a solid foundation, in large part because of reforms enacted after the financial crisis that ensured 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 depositors’ savings remain safe.”

These actions also apply to Signature Bank of New York, seen as 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 that makes it easier for banks to borrow from it in a crisis.

SVB was seen as a crucial lender for early-stage companies in the technology sector. It was the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on the stock markets last year.

I have spoken to people with money stuck in SVB at the weekend.

One founder told me that he had been constantly updating his online banking site in hopes that it would work.

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

This statement has thus been welcomed by the depositors. But there are those who will raise eyebrows at this move.

SVB mainly bankrolled start-ups and venture capitalists in Silicon Valley – the tech elite. And these Silicon Valley elites tend to have more than a streak of libertarianism in their politics: the basic view that government is slow and too big.

Critics argue that it is with great irony that it is the government that has stepped in to save the day. Some will wonder if influential tech bros have been given preferential treatment: capitalism when it’s going well, socialism when it’s not.

That is why the statement is worded carefully so that taxpayers do not have to pay for this. Sir. Biden will now have to defend the measure – and assure members of his own party that it was the only way to guarantee depositors.

Elsewhere, authorities in Canada took temporary control of the assets of SVB’s branch in the country. The top banking regulator said it intended to seek permanent control.

SVB started as a Californian bank in 1983 and expanded rapidly over the past decade.

But it came under pressure as higher interest rates made it harder for start-ups to raise money through private fundraising or share sales.

In Silicon Valley, the fallout from the collapse has been widespread, as companies face questions about what it means for their finances.

Paul Ashworth, North American chief economist at Capital Economics, said the US authorities had “acted aggressively to prevent a contagion”.

“Rationally, this should be enough to stop any contagion from spreading and closing more banks, which can happen in an instant in the digital age. But contagion has always been more about irrational fear, so we want to stress that there no guarantee this will work,” he added.

Meanwhile, HSBC has bought the UK branch of SVB.

The Treasury said the deal, which was struck with HSBC overnight before trading resumed on Monday, did not involve taxpayers’ money.

Customers and businesses who had been unable to withdraw their money will now be able to access it as normal.

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