New York-based Signature Bank collapses after Silicon Valley bank

Washington:

US officials unveiled sweeping measures Sunday to fully protect depositors’ money from the failed Silicon Valley bank and promised to help other institutions meet customer needs, as they announced a second technology… The friendly bank was shut down by regulators.

In a joint statement, financial agencies including the US Treasury said SVB depositors would have access to “all their money” from Monday, March 13, and US taxpayers would not have to foot the bill.

The US Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Treasury said depositors at Signature Bank, a New York-based regional-sized lender with significant cryptocurrency exposure, were closed after the stock price plunged on Sunday. I went. Complete.”

And in a potentially major development, the Fed announced it would make additional funds available to banks to help meet depositors’ needs, which would include withdrawals.

“We are taking decisive action to protect the American economy by strengthening public confidence in our banking system,” the agencies said in their joint statement.

“The US banking system remains resilient and on solid ground,” due to reforms made following the 2008 financial crisis, which introduced new safeguards for the banking industry.

“Those reforms combined with today’s actions demonstrate our commitment to taking the necessary steps to ensure that depositors’ savings are protected.”

avoid ‘infection’

The FDIC guarantees deposits – but only up to $250,000 per customer and per bank.

The Washington Post reported that federal banking law would, however, allow the FDIC to protect uninsured deposits if failure to do so would create a systemic risk.

Regulators on Friday took control of SVB – a major lender to startups across the United States since the 1980s – after a massive run on deposits left the medium-sized bank unable to stay on its own.

Hours before Sunday’s joint statement, Treasury Secretary Janet Yellen said the government wanted to avoid financial “contagion” from the SVB blunder, as it ruled out a bailout.

With the bank’s future, and its billions in deposits, up in the air, officials from three agencies raced to devise a solution and head off a potential financial panic just hours before financial markets in Asia were to open.

Yellen told CBS that the US government “wants to make sure that the trouble at one bank doesn’t lead to a transition to other banks that are good.”

He said the government was working with the FDIC on a “solution” to the situation in SVB, where some 96 percent of deposits are not covered by the FDIC’s reimbursement guarantee.

Investors punished the banking sector overall on Thursday after SVB disclosed its troubles a day earlier, but stocks of some big banks posted gains till Friday.

Despite efforts by US authorities to reassure financial markets, regional lenders remained under pressure.

They included First Republic Bank, which fell nearly 30 percent in two sessions on Thursday and Friday, and Signature Bank, which had lost a third of its value since Wednesday evening – and which was closed on Sunday.

Tokyo stocks opened lower on Monday with the benchmark Nikkei 225 index down 0.92 per cent, amid concerns overseas.

no bailout

Bailout is being demanded from the tech and finance sector since Friday.

Yellen said that the reforms undertaken after the 2008 financial crisis meant that the government was not considering this option for the SVB.

“During the financial crisis, there were investors and owners of systemically large banks that were bailed out … and the reforms that have been put in place mean we’re not going to do that again,” she said.

In their joint statement on the latest bank crisis and SBV and Signature’s efforts to protect depositors, the agencies stressed shareholders and some unsecured borrowers would not be protected and senior management removed.

Following the 2008 failure of Lehman Brothers and the ensuing financial meltdown, US regulators required major banks to hold additional capital in case of trouble.

US and European authorities conduct regular “stress tests” to uncover vulnerabilities in the largest banks.

The implosion of SVB not only represented the largest bank failure since Washington Mutual in 2008, but also the second largest ever for a US retail bank.

Little known to the general public, SVB specialized in funding startups and has become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits .

The company previously claimed that “nearly half” of the technology and life sciences companies that had US funding were among them, with many concerned about the potential ripple effects of its collapse.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)