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Silicon Valley Bank: Money in failed banks is safe, US authorities say

  • By Doug Faulkner and Robert Plummer
  • BBC news

US authorities took emergency measures on Sunday to strengthen the banking system after the collapse of Silicon Valley Bank (SVB) and Signature Bank.

People and businesses who have money deposited with SVB will be able to 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 on Monday.

In a statement, he promised to hold “those responsible for this mess fully accountable.”

SVB – which specialized in lending to technology companies – was shut down by regulators who seized its assets on Friday. It was the biggest failure of 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 bear no loss from the move, it said.

SVB struggled to raise money to cover a loss from the sale of assets affected by higher interest rates.

“The US banking system remains resilient and on a solid foundation, in large part due to reforms made after the financial crisis that ensured better security for the banking industry,” the authorities’ joint statement said.

“These reforms combined with today’s actions demonstrate our commitment to taking the necessary steps to ensure depositors’ savings remain safe.”

These actions also apply to Signature Bank of New York, seen as the most vulnerable institution after SVB, which came under regulatory scrutiny on Sunday.

As part of their move to restore confidence, regulators also unveiled a new way to give banks access to emergency funds.

The Federal Reserve said it would offer assistance through a new Bank Term Funding Program, making it easier for banks to borrow from it in a crisis.

SVB was seen as a crucial lender for early-stage companies in the technology sector. It was the banking partner for almost half of US venture-backed technology and healthcare companies that listed on the stock exchanges last year.

I have spoken to people with money stuck in SVB this weekend.

One founder told me that he had been constantly updating his online banking site, hoping it would work.

Another said he was sure the government would step in, but admitted he may have lost around 40% of his company’s cash overnight.

This statement has therefore been welcomed by depositors. But there are those who will raise eyebrows at this move.

SVB mainly tapped start-ups and venture capitalists in Silicon Valley – the technology elite. And these Silicon Valley elites tend to have more than a streak of libertarianism in their politics: the basic view that government is slow and too big.

Critics claim that it is with great irony that it is the government that has stepped in to save the day. Some will wonder if influential tech bros have been given preferential treatment: capitalism for when things go well, socialism for when it doesn’t.

That is why the statement is carefully worded that taxpayers should not pay for this. Mr Biden must now defend the move – and reassure members of his own party that guaranteeing depositors was the only way.

Elsewhere, the authorities in Canada temporarily took control of the assets of SVB’s branch in the country. The top banking regulator said it intended to seek permanent control.

SVB started as a California bank in 1983 and expanded rapidly over the past decade.

But it came under pressure as higher interest rates made it harder for start-ups to raise money through private fundraising or share sales.

In Silicon Valley, the fallout from the collapse has been widespread as companies face questions about what it means for their finances.

Paul Ashworth, North America chief economist at Capital Economics, said US authorities had “acted aggressively to prevent a contagion from developing”.

“Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in an instant in the digital age. But contagion has always been more about irrational fear, so we want to emphasize that it is no guarantee that this will work,” he added.

Meanwhile, HSBC has bought the British part of SVB.

The Treasury said the deal, which was struck with HSBC overnight before trading resumed on Monday, did not involve taxpayers’ money.

Customers and businesses who had not been able to withdraw their money will now be able to access it as normal.

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