US regulators bail out SVB clients who can access all their money on Monday
David Goldman, CNN
The Biden administration took an extraordinary step Sunday to restore confidence in America’s banking system and ensured that customers of the failed Silicon Valley bank would have access to all their money starting Monday.
In this regard, the government closed Signature Bank, a competitor to SVB, which has been teetering on the brink of collapse in recent days. Signature customers will get a similar deal, ensuring that even uninsured deposits are returned to them on Monday.
In a joint statement Sunday, Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell, and Federal Deposit Insurance Corporation Chairman Martin J. Grunberg said the FDIC will bring SVB and Signature clients together. By guaranteeing all deposits—even the uninsured money that customers kept in failing banks—the government sought to prevent new bank runs and to help companies that placed large amounts of money in banks continue to receive salaries and finance their activities.
The Fed will also provide additional funding to relevant financial institutions to prevent runs on similar banks on Monday.
“Monday will certainly be a busy day for many in the regional banking sector, but today’s action dramatically reduces the risk of further contagion,” Jefferies analysts Thomas Simons and Aneta Markowska said in a note to clients Sunday evening.
Regulators have said that US taxpayers will not cling to any of these objects. But shareholders and holders of unsecured corporate bonds will not be protected by the regulators’ plan.
“The US banking system remains strong and on solid footing, thanks in large part to the reforms that have taken place since [2008] financial crisis, which provided the best protection for the banking industry,” the regulators said. “These reforms, combined with today’s actions, demonstrate our willingness to take the necessary steps to ensure the safety of savers’ savings.”
US regulators have been working on a master plan over the weekend following the stunning and rapid collapse of SVB late last week. The Treasury, the Federal Reserve, and FDIC representatives have been working with the Biden administration over the past two days to create the facilities.
Federal officials spent the weekend pushing for the sale of the SVB. This weekend, the FDIC opened an auction for bids to acquire the bank, the Treasury Department said at a briefing Sunday with lawmakers in a California delegation, two people familiar with the briefing told CNN.
By guaranteeing deposits, the US government is trying to avoid two potentially risky bank failure scenarios, both of which could have dire consequences: other banks with profiles similar to SVB and Signature could become the next bankrupt if customers lose faith that they will have enough cash to replenish their deposits. And tech companies that kept their money in the SVB could go bust if they can’t pay salaries or fund their operations with $250,000 in deposits in an account that the FDIC insures.
As of the end of last year, SVB said it had $151.5 billion in uninsured deposits, of which $137.6 billion was held by US clients. Customers withdrew $42 billion from Silicon Valley Bank on Thursday, leaving the bank with a $1 billion negative cash balance, the company said in a statement.
A Silicon Valley bank bailout was out of the question, Yellen said in an interview with CBS on Sunday.
“Let me be clear that during the financial crisis, investors and owners of the systemically important big banks were bailed out…and the reforms that have been made mean we are not going to do it again,” Yellen told CBS. . “But we care about contributors and are focused on meeting their needs.”
This story and title has been updated with additional events.
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Phil Mattingly and Alaina Treen of CNN contributed to this report.
U.S. postal regulators say SVB customers will be reinstated as the second failed bank first surfaced on KION546.
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