New Delhi: Three days after the collapse of a Silicon Valley bank sparked panic among its depositors, startups and the US banking system, the US government and regulators took decisive action.
These actions have taken the form of an assurance that depositors will have access to their money, and a new fund will be created to help ailing financial institutions in the future.
The Federal Reserve Board, which is the board of America’s central bank, Said said on Sunday that it would make additional funding available “to help ensure that banks have the capacity to meet the needs of all their depositors”.
,Additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP)… There will be an additional source of liquidity against high-quality securities, allowing institutions to quickly sell those securities in times of stress will end. The Federal Reserve Board said in its statement.
It said it had obtained the US Treasury Secretary’s approval to provide $25 billion from the Exchange Stabilization Fund – a emergency reserve which can be used to reduce volatility in various financial sectors — to act as a backstop for BTFP.
However, the statement said that the Federal Reserve ,It does not anticipate that it will be necessary to attract these backstop funds”.
That same day, Treasury Secretary Janet Yellen, Federal Reserve Board Chairman Jerome Powell, and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg issued a statement. joint statement,
“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and after consulting with the President, Secretary Yellen approved the FDIC’s actions enabling it to satisfy its resolution of Silicon Valley Bank, Santa Clara, Calif. , which fully protects all depositors,” the statement read.
Depositors will have access to all their money from Monday, the statement said, adding: “Any losses associated with the resolution of the Silicon Valley bank will not be borne by the taxpayer”.
US President Joe Biden on his behalf Has promised To hold “solely accountable” the people behind the banking crisis. one in speech On Monday, Biden said: “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them.
However, he added that the bank’s managers would be fired and investors would lose money because “they deliberately took a risk, and when the risk didn’t pay off (they) lost their money. That’s how capitalism works”.
He further said that he is going to ask the Congress and the banking regulators to strengthen the rules for the banks and ensure that this type of failure does not happen again.
Meanwhile, HSBC Holdings announced On Monday its subsidiary – HSBC UK Bank – was acquiring SVB’s UK arm, Silicon Valley Bank UK Ltd, for just £1.
What series of events prompted the US President, the Treasury Secretary and the chairman of the board of the US central bank to join hands in trying to help depositors of a bank that less than a week ago was in sound financial condition ? And what happened second biggest banking collapse The largest in US history, and since the global financial crisis of 2007–08? Read on to find out.
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starting a bank
SVB was the 16th largest bank in the US and was widely known for lending to tech startups, including such large companies as Pinterest Inc, Shopify Inc, and CrowdStrike Holdings Inc.
Last Wednesday, Bank announced that it was raising $2.25 billion from a share sale and also sold $21 billion worth of securities from its existing portfolio.
The bank said it needed to do this to raise cash due to a decline in deposits.
Deposits themselves were falling as startups in the US dipped into their savings to cope with the ongoing ‘funding winter’. Extended period of low capital inflow for startups.
At the same time, it emerged that SVB had invested a large portion of its deposits in bonds it had bought when interest rates in the US were relatively low. The US Federal Reserve continues to hike interest rates 450 basis points From the beginning of 2022, the value of these bonds started falling rapidly.
This meant that when it came time for SVB to sell these bonds to raise funds, it had to do so at a loss.
A day after the share sale was announced, SVB’s parent company – SVB Financial Group – announced a 60 percent falls in stock price.
Simultaneously, the news of SVB’s serious crisis triggered a runs entirely on its deposits – that is, large venture capitalists and startups, fearing mass withdrawals of deposits that could lock them out, began to do exactly that, Producing the very bank run they feared.
The company’s share price continued to decline sharply on Friday, leading to trading is suspended,
In a statement, SVB said, “Despite the bank’s financial position being sound before March 9, 2023, investors and depositors began withdrawing $42 billion in deposits from the bank on March 9, 2023, putting pressure on the bank.” Fell.” Regulatory filing on March 10, “As of the close of business on March 9, the bank had a negative cash balance of approximately $958 million.”
bank end
FDIC announced On Friday the California Department of Financial Protection and Innovation was shutting down SVB and depositors will have access to their insured deposits over the next few days.
“To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB),” the FDIC said in its statement. “All insured depositors will have full access to their insured deposits as of Monday morning, March 13, 2023.”
According to latest rules On behalf of the FDIC, depositors can be insured for deposits up to $250,000.
However, depositors will have access to all of their deposits, not just the amount insured, according to a joint statement issued Sunday by the Treasury Secretary, the Chairman of the Federal Reserve Board and the Chairman of the FDIC.
Meanwhile, although SVB has Allegedly While investments have been made in some Indian startups, the quantum of these investments is not yet clear, making it difficult to gauge how big or small the impact will be here.
(Edited by Uttara Ramaswamy)
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