Federal regulators will safeguard all deposits at Silicon Valley Bank, including money that isn’t normally covered by federal deposit insurance, the Treasury Department announced Sunday evening, a rare and sweeping move designed to prevent the tech-focused bank’s rapid collapse from infecting the rest of the U.S. financial system.
Account holders will be able to access all of their deposits on Monday, the Treasury, Federal Reserve and Federal Deposit Insurance Corporation said in a joint statement.
The FDIC usually only insures $250,000 per account, but it can use its funds to protect uninsured deposits if the Treasury Secretary and two-thirds of the FDIC and Federal Reserve boards determine there is a “systemic risk” to the financial system—a strategy that federal officials appeared to pursue Sunday evening.
Taxpayers will not foot the bill for the rescue plan: The banks that fund the deposit insurance system will pay for any losses incurred from protecting Silicon Valley Bank’s uninsured depositors, with the FDIC charging them a “special assessment,” according to the Treasury.
The bank’s shareholders and “certain unsecured debtholders” won’t get federal protection, and its senior management staff are no longer in place.
The Federal Reserve is also creating a lending program for financial institutions impacted by Silicon Valley Bank’s failure, a move it said “will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.”
Signature Bank—a New York-based bank that previously focused on cryptocurrency—was also shut down by state regulators, marking the second crypto-friendly financial institution to fail in recent weeks, after Silvergate Bank. The Treasury said “all depositors of this institution will be made whole” through a program similar to Silicon Valley Bank’s rescue package.
What We Don’t Know
Whether federal officials will find a buyer for Silicon Valley Bank, which Sen. Mark Warner (D-Va.) from the Senate Finance Committee called “the best outcome.” Bloomberg reported bids were due Sunday afternoon.
$151.6 billion. That’s the total amount of uninsured U.S. deposits held by Silicon Valley Bank, making up the vast majority of the bank’s deposits as of December, according to FDIC filings.
Silicon Valley Bank was one of the 20 largest banks in the country before it crashed Friday, following a bank run that came after the Federal Reserve’s interest rate hikes hurt the value of its assets and caused depositors to withdraw funds. Its demise marks the biggest bank failure in the U.S. since the 2008 financial crisis, sparking fears the crash could create issues at other similarly sized financial institutions like First Republic Bank. Meanwhile, many of the bank’s clients were tech startups, and its failure impacted the already hurting industry. Treasury Secretary Janet Yellen said Sunday federal officials were working to help Silicon Valley Bank’s depositors, but added that a bailout of the bank’s investors isn’t necessary, in part because this situation is less severe than the Great Recession. “The American banking system is really safe and well-capitalized, it’s resilient,” she told CBS.
In a statement issued on Sunday evening President Joe Biden said: “I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe…I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
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