The U.S. announced emergency measures on Sunday night to prevent contagion from the collapse of Silicon Valley Bank, promising to backstop all depositors without using taxpayer funds, and shuttered a second lender, crypto-linked Signature Bank. The move came hours before Asian markets opened for trading.
"Depositors will have access to all of their money starting Monday, March 13," according to a joint statement by U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and the Federal Deposit Insurance Corp. Chairman Martin Gruenberg. Losses linked to SVB won't be borne by taxpayers.
Regulators worked through the weekend to find a buyer for the bank or another solution to prevent the fallout from spreading further.
- Regulators announced emergency measures to protect the banking system from the SVB collapse.
- Janet Yellen had ruled out a bailout and said regulators were focused on the needs of depositors.
- The measures were to shuttered Signature bank.
Fed To Offer One-Year Loans to Institutions
The FDIC took control of SVB on Friday after customers yanked billions of dollars from the lender in a 24-hour period after the bank disclosed a loss of almost $2 billion on the sale of an investment portfolio. The FDIC and the Fed are preparing a special vehicle to backstop deposits at banks that run into trouble following SVB's collapse.
"To support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors," according to a statement by the Federal Reserve. "The financing will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions."
Yellin earlier on Sunday ruled out a bailout of SVB. "We are not going to do that again," she said in an appearance on CBS. “We are concerned about depositors, and we’re focused on trying to meet their needs.”
Auction bids for the bank's assets were due on Sunday.
The Federal Reserve called an "expedited" closed-door meeting for Monday. Fed board members are set to discuss discount rates and may make a further announcement after the 11:30 am gathering. In 2020, when Covid shut down much of the economy, the Fed eased the terms for using the discount window.
Measures Extended to Crypto-Linked Firm
The Fed measures also included help for customers of Signature, whose stock price tumbled after the failure of fellow crypto lender Silvergate Bank. Concerns about cryptocurrencies spread after Circle's USDC stablecoin, whose owner had $3.3 billion of deposits at SVB, lost its peg to the U.S. dollar.
"Senior management has also been removed," the government statement said.
USDC rebounded from its lows on Saturday after Circle said it would cover any shortfall and the coin was on course to reclaim its $1 peg after Sunday's backstop announcement. Bitcoin also rose, trading above $22,000 after a 7% rally on Sunday.
Some 3,500 CEOs and founders signed a petition over the weekend urging Yellen and regulators to backstop depositors, warning that more than 100,000 jobs could be at risk.
Of Silicon Valley Bank's $173 billion in deposits, $151.5 billion weren't covered above the FDIC's $250,000 insurance cap, according to Zerohedge. To offset potential losses, Liquidity Group, a tech lender, was aiming to give start-up clients hurt by SVB's collapse some $3 billion of loans, Bloomberg reported.
Authorities insisted the moves will protect the U.S. economy by boosting confidence in the banking system.
"This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth," the statement said.
The financial risk wasn't limited to technology and crypto firms: Hundreds of California winemakers are also customers of SVB.
“It could be devastating,” John Balletto, president of Balletto Vineyards, told the Wall Street Journal,. While his own SVB deposits are small enough to fall under the FDIC's limit, he knows of others who aren't insured, he told the publication.