- By Doug Faulkner & Robert Plummer
- BBC News
March 12, 2023
Updated 14 minutes ago
US authorities on Sunday took emergency measures to prop up the banking system after the collapse of Silicon Valley Bank (SVB) and Signature Bank.
People and businesses who have deposited money with the SVB could 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 Monday.
In a statement, he vowed to “hold those responsible for this mess fully accountable.”
SVB, which specialized in lending to tech companies, was shut down on Friday by regulators who seized its assets. It was the largest bankruptcy by a US bank 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 not bear any losses from the move, it said.
The SVB struggled to raise money to offset a loss from the sale of assets impacted by higher interest rates.
“The US banking system remains resilient and is on solid foundations, in large part due to post-financial crisis reforms that provided better protection for the banking industry,” the authorities said in a joint statement.
“These reforms, coupled with today’s actions, demonstrate our commitment to taking the necessary steps to ensure depositor savings remain safe.”
Those measures also apply to Signature Bank of New York, which is considered the most vulnerable institution after the SVB, which came under regulators’ oversight 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 support through a new Bank Term Funding Program to make it easier for banks to borrow from it in a crisis.
The SVB was considered an important lender for young companies in the technology sector. It has been the banking partner for nearly half of the US venture capital-backed technology and healthcare companies that went public last year.
I spoke to people over the weekend whose money is in the SVB.
One founder told me he kept updating his online banking site hoping it might work.
Another said he was confident the government would step in but admitted he may have lost about 40% of the company’s cash overnight.
So this statement was welcomed by depositors. But there are those who will raise eyebrows at this step.
The SVB has mainly signed startups and venture capitalists in Silicon Valley – the tech elite. And these Silicon Valley elites tend to have more than a touch of libertarianism in their politics: the default view is that government is slow and too big.
Critics argue that, with great irony, it is the government that has stepped in to save the day. Some will wonder if influential tech brothers have been given preferential treatment: capitalism when things are going well, socialism when things aren’t.
That is why the declaration is carefully worded that the taxpayers will not pay for it. Mr Biden must now defend the move – and reassure members of his own party that the depositors’ guarantee was the only way forward.
Elsewhere, authorities in Canada temporarily took control of the assets of the SVB branch in the country. The top banking regulator said it intends to seek permanent control.
SVB began as a California bank in 1983 and has expanded rapidly over the past decade.
However, it came under pressure as higher interest rates made it harder for startups to raise money through private fundraising or stock sales.
In Silicon Valley, the reverberations of the collapse have been widespread as companies grapple with what it means for their finances.
Paul Ashworth, chief economist for North America at Capital Economics, said US authorities “acted aggressively to prevent contagion from developing”.
“Rationally, this should be enough to prevent contagion from spreading and shutting down more banks, which can happen in a jiffy in the digital age. But contagion has always been more about irrational fear, so we want to stress that there’s no guarantee this will work,” he added.
HSBC has since bought SVB’s UK arm.
The Treasury said the deal, which was being negotiated with HSBC throughout the night before trading resumed on Monday, did not involve taxpayers’ money.
Customers and businesses who have not previously been able to withdraw their funds can now access them as usual.