(Washington) The American authorities announced Sunday a series of measures to reassure individuals and companies on the solidity of the American banking system and will in particular guarantee the withdrawal of all the deposits of the bankrupt bank Silicon Valley Bank (SVB).
In addition to SVB, they will allow access to all the deposits of another establishment, Signature Bank, which was automatically closed by the regulator, to everyone’s surprise, according to a press release.
The Federal Reserve (Fed) – the US central bank – has also agreed to lend the necessary funds to other banks that need them to honor withdrawal requests from their customers.
These measures were taken jointly by Treasury Secretary Janet Yellen, the Fed and the Deposit Guarantee Agency (FDIC), after consultation with US President Joe Biden, the statement said.
The whole system testifies to the turbulence that threatens the American banking system, disturbed by the forced monetary tightening of the Fed.
The rise in rates has put pressure on banks, which often lend long-term but borrow short-term, with short rates currently much higher than long rates.
It has also encouraged customers to invest their money in financial products that pay better than current accounts and has shaken up the new technology sector.
The wave of withdrawals that followed caused the default of three banks this week, namely SVB, Signature Bank but also Silvergate Bank, smaller but known for its privileged links with the cryptocurrency community.
The New York-based Signature Bank is the 21e American bank, with assets estimated by the Fed at 110 billion dollars, at the end of 2022 and 88 billion dollars in deposits.
Its default is the third largest in US history, behind SVB and Washington Mutual in 2008.
“Today, we are taking decisive action to protect the US economy by strengthening confidence in our banking system,” the Fed, Treasury and FDIC said in their statement.
“This initiative will allow the US banking system to continue to play its vital role of protecting deposits and providing access to credit for households and businesses,” they continued.
“Not 2008”
After the announcement of the SVB takeover by the FDIC on Friday, many had worried about the fate of deposits blocked by the establishment’s default.
Some 96% of them were, in fact, not covered by the traditional guarantee of deposits, which provides up to 250,000 dollars per customer and per bank.
“The banking system is much more resilient and has a much better foundation than before the financial crisis,” insisted a Treasury official. “To be clear, the situation is not like 2008.”
“The Fed’s actions this weekend are intended to end the disruptions in the banking sector and the financial system that had manifested rapidly in recent days,” said a Fed official.
All of the measures unveiled on Sunday were “necessary to address the systemic risk that we have observed in the financial markets”, he argued.
At the same time, the American authorities put SVB up for auction with the aim of finding a buyer as soon as possible.
California Democratic House Representative Josh Harder confirmed the auction to the Axios news site, saying the bid submission deadline, originally set at 2 p.m. EST on Sunday, could be postponed.
The race against time initiated by the American authorities recalls the weekend of September 13 and 14, 2008.
They had then failed to find a buyer for the Lehman Brothers bank, pushing it to file for bankruptcy on Monday, with dramatic consequences for the financial sector and the entire economy.
Sunday’s announcements came minutes before the Tokyo Stock Exchange opened. Around 8:30 p.m. (Eastern Time) Monday, it was down 1.32%.
In addition to the stability of the banking system, many expressed concern about the repercussions of the SVB bankruptcy on the technology sector, American but also beyond.
SVB boasted that its clients were “nearly half” of technology and life sciences companies financed by American investors.
SVB deposits amounted to around $170 billion, according to a document released Wednesday by the establishment, but colossal withdrawals have taken place since.
“A lot of depositors are small businesses that need to be able to access their funds to pay their bills and they employ tens of thousands of people” in the United States, Janet Yellen noted on CBS on Sunday.
PHOTO MARIAM ZUHAIB, ASSOCIATED PRESS
US Treasury Secretary Janet Yellen
On Sunday, British Finance Minister Jeremy Hunt said the fall of SVB posed a “serious risk” to his country’s tech sector.
Janet Yellen ruled out a bailout of SVB on Sunday via an injection of public money.
The solution announced on Sunday protects depositors but “the investors (shareholders) of these two banks (SVB and Sigature Bank) will lose everything” and their leaders will be replaced, underlined the Fed official.
