US pledges to protect Silicon Valley Bank deposits

US Treasury Secretary Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell and FDIC Chairman Martin J. Gruenberg released a joint statement on Sunday that they will complete the Bank of America resolution. Silicon Valley (SVB) while protecting depositors.

“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of the Bank of Silicon Valley will be borne by the taxpayer,” they said in a joint statement.

The reason why the authorities believe that the taxpayer will not incur costs is that the authorities who manage the bank will be able to use its remaining assets to cover the costs of reimbursing depositors.

The same also applies to Signature Bank. On Sunday, the New York State Chartering Authority closed down the cryptocurrency-exposed lender that had lost about a third of the value of its stock price in the second half of the week.

President Joe Biden told reporters on Sunday that he would speak at length on the issue on Monday.

On Friday, US regulators shut down the SVB in the biggest bank failure since the 2008/9 financial crisis, following a sudden run on deposits.

Meanwhile, in the UK, reports surfaced of several suitors interested in the bank’s British subsidiary late on Sunday, shortly before markets reopen on Monday.

What else did Yellen say?

The statement said senior management would be ousted and shareholders and certain holders of unsecured debt would not be protected.

The Federal Reserve Board also said it would make “additional funding available to eligible depository institutions to help ensure banks have the capacity to meet the needs of all their depositors.”

The FDIC guarantees deposits of up to $250,000 (about €235,000), but many of the companies and wealthy people who used the bank had more than that amount in their accounts.

House Speaker Kevin McCarthy told Fox News that he hoped Silicon Valley Bank would eventually be purchased.

“I think it would be the best result to move forward and cool the markets and let people understand that we can move forward in the right way,” he said.

US banking system ‘resilient’

Asian markets fell on Monday, reacting to the SVB news.

Yellen tried to reassure those worried about a possible domino effect from the SVB failure. She insisted that the US banking system was safer than it was during the financial crisis nearly 15 years ago, which led to several bank bailouts.

“The American banking system is really safe and well capitalized,” said Yellen. “It’s tough.”

After the Lehman Brothers bankruptcy in 2008 and subsequent financial meltdown, US regulators required major banks to hold on to additional capital in case of trouble.

But some analysts warned that some regional US banks may be in trouble, as demonstrated by the closure of Signature Bank on Sunday.

What was the Bank of Silicon Valley?

SVB was little known to the public, but it was a major backer of technology startups in the United States and around the world and had strong relationships with venture capital firms.

By the end of 2022, it had become the 16th largest US bank by assets, with $209 billion in assets and approximately $175.4 billion in deposits.

However, the bank was impacted by the US central bank’s aggressive interest rate hikes last year, which hurt financial conditions in the early space.

Many of the SVB’s assets, such as bonds or mortgage-backed securities, lost market value as rates rose.

Then its customers — mostly tech companies that needed cash as they struggled to get funding — began to withdraw their deposits.

The bank had to sell bonds at a loss to cover the withdrawals.

British banks begin bidding for SVB’s UK branch

The UK’s Bank of London, a clearing bank leading a consortium of private equity firms, submitted an official bid to take over SVB’s UK branch on Sunday. The proposal was submitted to the SVB, the UK government and the Bank of England (BoE).

Other British banking institutions reported to be interested in the British branch of the beleaguered Californian bank include OakBank North, which is owned by Japanese multinational SoftBank.

Media reports have suggested that HSBC (Hong Kong and Shanghai Banking Corporation) is also interested in SVB’s UK branch. Additionally, Lloyds Banking Group and NatWest Group have reportedly been approached about a possible emergency takeover.

The Bank of England has said it will seek a court order to put SVB’s UK branch into insolvency.

In the US, watchers of technology news website The Information say big banks such as JPMorgan or Bank of America are unlikely to join the race to take over the SVP, noting it is more plausible that smaller regional banks such as PNC Financial, US Bank , Trust or Capital One would look to get involved.

Other impacts in other parts of the world

Governments around the world said they were trying to find solutions to limit the possible impact of the collapse of SVB, which has subsidiaries in Canada, Europe and a joint venture in China.

India’s technology minister said on Sunday he would meet with startups this week to assess the impact of the collapse on them.

The South Asian country has one of the biggest startup markets in the world, with many billion-dollar valuations in recent years and backed by foreign investors.

“[I] for some founders and it’s pretty bad,” Ashish Dave, CEO of Asset Venture Investments (India), spokesperson for Mirae, wrote in a tweet.

“Especially for Indian founders … who started their companies in the US and raised their initial round, SVB is the default bank. Uncertainty is killing them. Growers are relatively safer as they diversify. The last thing founders need.”

german business journal handelsblatt said SVB had 3,600 customers in Europe. About 10% of them were said to come from Germany.

Meanwhile, Israel’s bank supervisor Yair Avidan said he was closely monitoring the “immediate developments” of the collapse, as well as those that could happen in the future.

Israel’s technology sector is the country’s main growth engine and its relationship with the Silicon Valley region is strong.

Many Israeli-based startups had SVB accounts, although the amounts are not fully known.

js,mm/msh (AFP, AP, Reuters)