US pledges measures to protect Silicon Valley Bank deposits

US Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg released a joint statement Sunday that they will complete the resolution of the Silicon Valley Bank (SVB) whilst protecting depositors.

“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” they said in a joint statement.

The reason authorities believe the taxpayer will incur no cost is that authorities administrating the bank will be able to use its remaining assets to cover the costs of reimbursing depositors.

The same will also apply to Signature Bank. On Sunday, the New York State Chartering Authority closed down the cryptocurrency-exposed lender that had lost around a third of its share price value in the second half of the week.

President Joe Biden told reporters on Sunday that he would speak at more length on the issue early on Monday.

On Friday, US regulators pulled the plug on SVB in the largest bank failure since the 2008/9 financial crisis after a sudden run on deposits.

Meanwhile, in the UK, reports of several interested suitors in the bank’s British subsidiary emerged late on Sunday, shortly before the markets reopen on Monday.

 

What else did Yellen say?

The statement said senior management would be removed, and shareholders and certain unsecured debt holders would not be protected.

The Federal Reserve Board also said it would make available “additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.”

FDIC insures deposits up to $250,000 (roughly €235,000), but many of the companies and wealthy people who used the bank had more than that amount in their accounts.

House Speaker Kevin McCarthy told Fox News he hoped that Silicon Valley Bank would ultimately be bought.

“I think that would be the best outcome to move forward and cool the markets and let people understand that we can move forward in the right manner,” he said.

 

US banking system ‘resilient’

China and Hong Kong stocks rose on Monday, after the news of US authorities stepping in to limit the fall of SVB. The blue-chip CSI 300 Index and Hong Kong’s Hang Seng benchmark were up more than 0.5% each in early morning trade. Japan’s Nikkei was down by 1.6%.

Yellen tried to reassure those concerned about a possible domino effect from the failure of SVB. She insisted that the US banking system was safer than during the financial crisis almost 15 years ago, which led to several bank bailouts.

“The American banking system is really safe and well capitalized,” Yellen said. “It’s resilient.”

Following the 2008 failure of Lehman Brothers and the ensuing financial meltdown, US regulators required major banks to hold additional capital in case of trouble.

But some analysts have warned that some regional US banks could be in trouble, as was demonstrated by Signature Bank’s closure on Sunday.

Crypto exchange Bitstamp said it would continue to operate normally despite the closure of Signature Bank. Coinbase said on Twitter they expected to fully recover $240 million (€223 million) balance in corporate cash at Signature.

What was Silicon Valley Bank?

SVB was little known to the public but was a key lender to technology startups in the US and globally and had strong relationships with venture capital firms.

By the end of 2022, it had become the 16th largest US bank by assets, with $209 billion in assets and approximately $175.4 billion in deposits.

However, the bank was impacted by the US central bank’s aggressive interest rate hikes in the last year, which crimped financial conditions in the startup space.

Many of SVB’s assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.

Then its customers — largely technology companies that needed cash as they struggled to get financing —  started withdrawing their deposits.

The bank had to sell bonds at a loss to cover the withdrawals.

 

British banks begin submitting bids for SVB’s UK branch 

The UK’s Bank of London, a clearing bank that leads a consortium of private equity firms, submitted an official offer to take over UK branch of SVB Sunday. The proposal was submitted to SVB, the UK government and the Bank of England (BoE).

Other British banking institutions reported to be interested in the UK branch of the beleaguered California lender include OakBank North, which is owned by Japanese multinational SoftBank.

Media reports have suggested that HSBC (Hong Kong and Shanghai Banking Corporation) is also interested in the UK branch of SVB. Furthermore, Lloyds Banking Group and NatWest Group are said to have been approached about a possible emergency takeover.

The Bank of England has said that it will seek a court order to place SVB’s UK branch into insolvency.

In the US, observers at technology news site “The Information” say it is unlikely that big banks like JPMorgan or Bank of America will join in the race to take over SVP, noting that it is more plausible that smaller regional banks like PNC Financial, US Bank, Trust or Capital One would look to get involved.

 

Further impacts elsewhere in the world

Governments around the world said they were trying to find solutions to limit the potential hit to companies from the collapse of SVB, which has subsidiaries in Canada, Europe and a joint venture in China.

The state minister for technology in India said Sunday he will meet startups this week to assess the impact on them of the collapse.

The South Asian country has one of the world’s biggest startup markets, with many clocking multi-billion-dollar valuations in recent years and backed by foreign investors.

“[I] spoke to some founders and it is very bad,” Ashish Dave, CEO of Mirae Asset Venture Investments (India), wrote in a tweet.

“Especially for Indian founders… who set up their US companies and raised their initial round, SVB is default bank. Uncertainty is killing them. Growth ones are relatively safer as they diversified. Last thing founders needed.”

German business daily Handelsblatt said SVB had 3,600 customers in Europe. Around 10% of them were said to come from Germany.

Meanwhile, Israel’s Supervisor of Banks Yair Avidan said it was closely monitoring for “immediate developments” from the collapse as well for those that could happen in the future.

Israel’s tech sector is the country’s main growth engine and its relationship with the Silicon Valley region is strong.

Many Israel-based startups had accounts at SVB, although the amounts are not fully known.