The recent failure of one of the top banks in the tech industry, Silicon Valley Bank, has led to concerns about a broader financial crisis that could have far-reaching consequences.
The US Treasury, Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) have taken extraordinary steps to prevent such a crisis by backing all Silicon Valley Bank deposits. It aimed the move at resolving concerns about uninsured funds held at the bank, which had over $209 billion in assets and more than $175 billion in deposits.
In a joint statement, the agencies announced that depositors would have access to all of their money starting on March 13.
The statement also confirmed that no losses associated with the resolution of Silicon Valley Bank would be borne by the taxpayer and that senior management of SVB would be removed.
Extraordinary Measures to Calm Financial Markets
The announcement is a significant move made by federal regulators aimed at calming financial markets before Monday trading resumes in Asia and Europe, followed by North America.
Dow futures jumped more than 150 points Sunday night following news of the backstop plan. However, major markets in the Asia-Pacific region were mixed on Monday morning, with Japan’s Topix recording the biggest loss at about 2%.
The guarantee from federal regulators has brought relief to Silicon Valley Bank’s customers and staffers. Vanessa Pham, co-founder of the Asian food products business, Omsom, which banks with SVB, expressed relief that the deposit guarantee would ensure that the company would not run out of money within the next few months.
A source inside Silicon Valley Bank, who worked as a managing director in a regional office before Friday’s shutdown, also welcomed what he called a “favorable resolution.”
HSBC buys Silicon Valley Bank UK, protecting deposits
The U.K. government on Monday said that HSBC Holdings had gained the British arm of troubled U.S. tech startup-focused Silicon Valley Bank.
“This morning, the Government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC Deposits will be protected, with no taxpayer support I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise,” British finance minister Jeremy Hunt tweeted on Monday.
HSBC Holdings said it paid a purchase price of £1 as part of the transaction.
Hunt had on Sunday said that the U.K. administration and the Bank of England were working to “avoid or minimize” potential damage resulting from the U.K. branch of SVB.
Uncertainty Remains for Employees
While depositors have been guaranteed, the bank’s employees still face doubts about their jobs.
SVB has said that it has more than 8,500 employees, and it remains unclear what the future holds for them.
A second SVB employee said that while clients were guaranteed not to lose money, the disruption and uncertainty caused by the shutdown had crushed people.
Regulators Watch Other Banks with Similar Issues
In addition to taking control of Silicon Valley Bank, federal regulators have also taken control of Signature Bank in New York, which is about half the size of SVB and had become a hub for cryptocurrency financing.
The FDIC has also set up an emergency lending program to give banks quick access to funds “in times of stress.” The senior Treasury official has not ruled out the possibility of finding a buyer for either SVB or Signature Bank.
The intervention by federal regulators required the use of a “systemic risk exception,” an extraordinary measure that allows financial regulators to step in without congressional action. The move required joint approval from the Federal Reserve, the FDIC, and the Treasury in consultation with President Joe Biden.
Final Thoughts
The intervention by federal regulators to back Silicon Valley Bank deposits is aimed at preventing a broader financial crisis that could have far-reaching consequences. The decision to guarantee depositors’ access to their money has brought relief to Silicon Valley Bank’s customers and staffers.
However, uncertainty remains for the bank’s employees, and regulators continue to watch other banks with similar issues. The move required the use of a “systemic risk exception,” an extraordinary measure that allows financial regulators to step in without congressional action.
