The bankruptcies of US banks Silicon Valley Bank (SVB) and Signature do not pose a danger to French financial institutions, Finance Minister Bruno Le Maire said Monday as authorities in the US and UK took extraordinary steps to stop a potential banking crisis.
"I don't see any risk of contagion, so there's no special warning" to issue to local lenders, Le Maire told broadcaster FranceInfo.
France's banks and financial system were "solid" with "a high liquidity ratio" to withstand shocks, added Le Maire.
What's more, unlike Silicon Valley Bank – which focused on cutting-edge technology firms – French lenders "are not exposed to a single sector" but are "very diversified", said the minister.
Le Maire's comments came shortly after UK authorities announced that HSBC bought SVB's UK arm for a nominal £1 ($1.2) in a rescue deal.
The UK Treasury and the Bank of England “facilitated the sale″ of Silicon Valley Bank UK to HSBC, ensuring the security of £6.7 billion ($8.1 billion) of deposits.
British officials worked throughout the weekend to find a buyer for the UK subsidiary of the California-based bank, whose collapse was the second-largest bank failure in history.
“This morning, the government and the Bank of England facilitated a private sale of Silicon Valley Bank UK to HSBC,″ UK finance chief Jeremy Hunt said in a tweet. “Deposits will be protected, with no taxpayer support. I said yesterday that we would look after our tech sector, and we have worked urgently to deliver that promise.”
US regulators on Sunday stepped in to ensure depositors' access to their funds at SVB, having taken it over on Friday after it was hit by a run of withdrawals.
Depositors will also be protected at New York-based Signature, which was closed on Sunday after its stock price tanked.
Also Sunday, another beleaguered bank, First Republic Bank, announced that it had bolstered its financial health by gaining access to funding from the Federal Reserve and JPMorgan Chase.
In a separate announcement, the Fed late Sunday announced an expansive emergency lending programme that’s intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole. Fed officials characterised the programme as akin to what central banks have done for decades: Lend freely to the banking system so that customers would be confident that they could access their accounts whenever needed.
The lending facility will allow banks that need to raise cash to pay depositors to borrow that money from the Fed, rather than having to sell Treasuries and other securities to raise the money. Silicon Valley Bank had been forced to dump some of its Treasuries at at a loss to fund its customers’ withdrawals. Under the Fed’s new programme, banks can post those securities as collateral and borrow from the emergency facility.
The Treasury has set aside $25 billion to offset any losses incurred under the Fed’s emergency lending facility. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.
Biden 'firmly committed' to holding those responsible
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. 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”.
Regulators had to rush to close Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run on the bank in which 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. Sunrun, which sells and leases solar energy systems, had less than $80 million of cash deposits with Silicon Valley Bank. Stitchfix, the clothing retail website, disclosed recently that it had a credit line of up to $100 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.
“Small businesses and early stage startups don’t have a lot of access to leverage in a situation like this, and we’re often in a very vulnerable position, particularly when we have to fight so hard to get the wires into your bank account to begin with, particularly for me, as a Black female founder,” Dufu told The Associated Press.
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 US financial institution since the height of the financial crisis.
Treasury Secretary Janet Yellen pointed to rising interest rates, which have been increased by the Fed 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 during the 2008 financial crisis, recalled that with nearly all the bank failures then, “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’s “Meet 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.”
(FRANCE 24 with AFP, AP and Reuters)
