Federal regulators announced on Sunday that they would ensure that all Silicon Valley Bank depositors – which failed on Friday – were fully refunded as they rushed to block consequences of the collapse of a large organization.
The Federal Reserve, the Treasury and the Federal Deposit Insurance Corporation announced in a joint statement that “depositors will have access to all their funds starting Monday, December 1st.” March 13. Taxpayers will not incur any losses related to the Silicon Valley Bank settlement.”
The agencies also said they would enact a similar program for Signature Bank, which the government revealed was shut down on Sunday by the state charter agency.
Signature Bank, headquartered in New York, has long specialized in providing banking services services for law firms, offers everything from cash management services to escrow accounts to hold client funds.
The decision to close the bank was made in coordination with the New York Department of Financial Services, one of Signature’s regulators. In a statement, New York banking regulators said the move was made “due to market events, monitoring market trends and working closely with state regulators.” and other federal government” to protect consumers and the financial system.
The deposit pay move comes after the FDIC on Friday took over Silicon Valley Bank on Friday, putting nearly $175 billion in customer deposits under the regulator’s control. The bank’s failure, the biggest since the 2008 financial crisis, has raised fears that other financial firms could suffer a similar fate as rising interest rates put pressure on banking sector and as anxious depositors consider withdrawing their funds.
Customers with deposits up to $250,000 are FDIC insured, but the bank has a large number of accounts exceeding that limit — and there is no guarantee that those customers will receive their full funds. Surname.
That fact rocked the banking industry over the weekend, prompting the government to race to sell the bank to a private buyer or come up with some other solution. Officials and economists worry that people with uninsured bank accounts at other banks in the region may begin to fear for the safety of their own deposits – which could They can get them to withdraw their money and move it to bigger banks, thinking they are safer. Some have warned that it could turn what could have been a one-time bank failure into a far-reaching crisis.
The key question is “will this be handled in a way that alleviates concerns and prevents fleeing elsewhere?” Kristin J. Forbes, an economist at the Massachusetts Institute of Technology, said earlier on Sunday.
That kind of broader panic is something regulators are trying to prevent with the newly announced package, which has taken advantage of an exception that allows the FDIC – the body that is usually supposed to clean up a bank’s spillovers. fail in the cheapest way possible – there is a risk of additional costs if there is a risk to the financial system involved.
The agencies said that “any loss to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment of the banks, at the request of the Bank. law.”
The Fed also stated that it will set up an emergency loan program, with approval from the Treasury Department, to channel additional funds to eligible banks to help ensure that they can “meet the needs of all their depositors.”
The program, backed by $25 billion in cash from a vault at the Treasury was originally intended to stabilize the exchange rate but is now commonly used as a support measure for the Fed’s programs in crisis period, will provide loans of up to one year to banks, savings associations, credit unions, and other qualified depository institutions in exchange for U.S. Treasury Bonds, debt agents and mortgage-backed securities.
Those assets will be valued at par — that is, their original value. Interest rates have risen a lot over the past year, reducing the value of long-term bonds purchased when interest rates are low. The Fed’s new program could expose financial institutions to huge losses if they have to buy back their securities at today’s market value.
The sweeping measures taken by the government on Sunday underscored how serious officials worry the situation could become. The actions show officials worried that the cracks that emerged at Silicon Valley Bank earlier this week could turn into a system-wide crisis if not contained with dramatic action.
The moves “demonstrate our commitment to taking the necessary steps to ensure that depositors’ savings remain safe,” the agencies said in their joint statement.
Maureen Farrell And Karoun Demirjian contribution report.
