Fed officials characterised the program as akin to what central banks have done for many decades:Lend freely to the banking system so that customers would be confident that they could access their accounts whenever needed.
A sign to Silicon Valley Bank is seen through raindrops on a window in Santa Clara,California.Credit:AP
Analysts said the Fed’s program should be enough to calm financial markets on Monday,in the US.
“Monday will surely be a stressful day for many in the regional banking sector,but today’s action dramatically reduces the risk of further contagion,” economists at Jefferies,an investment bank,said in a research note.
Though Sunday’s steps marked the most extensive government intervention in the banking system since the 2008 financial crisis,its actions are relatively limited compared with what was done 15 years ago. The two failed banks themselves have not been rescued,and taxpayer money has not been provided to the banks.
President Joe Biden said Sunday evening as he boarded Air Force One back to Washington that he would speak about the bank situation on Monday,US time.
In a statement,Biden also said he was “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.”
US treasury secretary Janet Yellen had earlier ruled out a bailout.Credit:Bloomberg
Regulators had to rush to close Silicon Valley Bank,a financial institution with more than $US200 billion in assets,on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in US history,behind only the 2008 failure of Washington Mutual.
Some prominent Silicon Valley executives feared that if Washington didn’t rescue the failed bank,customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies,including First Republic Bank and PacWest Bank.
Among the bank’s customers are a range of companies from California’s wine industry,where many wineries rely on Silicon Valley Bank for loans,and technology startups devoted to combating climate change.
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Sunrun,which sells and leases solar energy systems,had less than $US80 million of cash deposits with Silicon Valley. Stitchfix,the popular clothing retail website,disclosed in a recent quarterly report that it had a credit line of up to $US100 million with Silicon Valley Bank and other lenders.
Tiffany Dufu,founder and CEO of The Cru,a New York-based career coaching platform and community for women,posted a video Sunday on LinkedIn from an airport bathroom,saying the bank crisis was testing her resiliency. Given that her money was tied up at Silicon Valley Bank,she had to pay her employees out of her personal bank account. With two teenagers to support who will be heading to college,she said she was relieved to hear that the government’s intent is to make depositors whole.
Silicon Valley Bank began its slide into insolvency when 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,leading to the largest failure of a U.S. financial institution since the height of the financial crisis.
Yellen described rising interest rates,which have been increased by the Federal Reserve to combat inflation,as the core problem for Silicon Valley Bank. Many of its assets,such as bonds or mortgage-backed securities,lost market value as rates climbed.
Sheila Bair,who was chairwoman of the FDIC chair during the 2008 financial crisis,recalled that with almost all the bank failures during that time,“we sold a failed bank to a healthy bank. And usually,the healthy acquirer would also cover the uninsured because they wanted the franchise value of those large depositors so optimally,that’s the best outcome.”
But with Silicon Valley Bank,she told NBC’sMeet the Press,” “this was a liquidity failure,it was a bank run,so they didn’t have time to prepare to market the bank. So they’re having to do that now,and playing catch-up.”
AP