All clients of Silicon Valley Bank will have access to their funds from Monday at no cost to US taxpayers, federal regulators announced as a second bank was shuttered.
Secretary of the Treasury Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg released a joint statement on Sunday evening outlining what they say are decisive actions to protect the US economy and strengthen public confidence in the banking system.
“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors,” the statement reads.
“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.”
A similar systemic risk exception has also been put in place for Signature Bank of New York, which was closed today by the state chartering authority.
All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.
Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.
The Federal Reserve Board also said it will make additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
“The US banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe,” the statement adds.
Silicon Valley Bank failed on Friday, as fearful depositors withdrew billions of dollars from the bank in a matter of hours, forcing regulators to urgently close the bank in the middle of the workday to stop the bank run.
It’s the second-largest bank failure in US history, behind the collapse of Washington Mutual at the height of the 2008 financial crisis.
Silicon Valley Bank was the 16th-largest bank in the country and its predominant clientele was technology startup companies, venture capital firms, and well-paid technology workers, as its name implies.
The vast majority of the deposits at the bank were in business accounts with balances significantly above the FDIC insured $250,000 limit.
Its failure meant that more than $150bn in deposits were to be locked up in receivership until the government stepped in late on Sunday.
Some prominent Silicon Valley executives feared that if the government didn’t step in, customers would make runs on other financial institutions.
Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.
Signature Bank specialises in providing banking services to law firms from cash management services to escrow accounts for holding client money.
Regulators in New York said the decision to close the bank came “in light of market events, monitoring market trends, and collaborating closely with other state and federal regulators” with the intention of protecting both consumers and the financial system.
With additional reporting from The Associated Press