Federal banking regulators said Sunday they would protect all Silicon Valley Bank depositors, including those above the $250,000 deposit insurance limit provided by the Federal Deposit Insurance Corporation.
“Depositors will have access to all of their money starting Monday, March 13,” the FDIC, Federal Reserve and Treasury Department said in a joint statement. “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
The regulators also said would protect depositors at Signature Bank in New York City. Santa Clara, Calif.-based SVB collapsed on Friday. Signature was closed Sunday by state banking officials.
Moving quickly in the wake of SVB’s collapse, the regulators met over the weekend to find a solution that would not only reassure depositors, but also markets before they open on Monday, and potential critics wary of a government bailout of another bank. They cited the danger of systemic risk to the financial system for the authority to take the actions against both banks.
“Shareholders and certain unsecured debtholders will not be protected,” the statement said. “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.”
President Joe Biden said in a statement that the regulators acted at his direction. “I am 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,” he added. Biden said he would make comments Monday on banking and the economy.
A senior Treasury official on a call with reporters stressed the actions were not like the bailouts banks received amid the 2008 financial crisis.
“We are trying to help the depositors of these institutions. The bank’s equity and bond holders are being wiped out. They took a risk… They will take the losses,” the official said. The conditions of the call were that the official not be named. “The firms are not being bailed out. The depositors are being protected.”
The FDIC took over SVB after a run prompted by its effort to offload reserve assets and a plummet in the stock price. The bank, which catered to tech companies, including established ones such as Roku and Etsy, and many startups, had an unusually high proportion of uninsured deposits, leading to fears that companies banking with the institution would be unable to meet payroll obligations without intervention.
In a separate statement Sunday, the Fed said it was establishing a Bank Term Funding Program to make additional funding available for up to one year to help assure banks, savings associations, credit unions and other eligible depository institutions can meet depositors’ needs. The financial institutions would have to pledge Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.
The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress. “This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” it said. “The Federal Reserve is prepared to address any liquidity pressures that may arise.”
The Treasury would provide up to $25 billion as a backstop for the new program, the Fed said, adding that it didn’t expect to draw on those funds.
The regulators’ announcement came amid reports that they were seeking buyers for SVB, an option pushed by some members of Congress. The Treasury official said the actions taken Sunday will leave open the possibility of a sale, and added that regulators used the systemic risk worry to justify an action that could be taken more quickly than a sale.
“This bank is a unique bank where they do have assets. They have an amazing clientele. It’s something that could be very possible for someone to purchase this bank,” House Speaker Kevin McCarthy, R-Calif., said on Fox News Channel’s “Sunday Morning Futures.”
Rep. Ro Khanna, D-Calif., who represents Santa Clara, where the bank is headquartered, likewise pushed for a sale.
“That would be the ideal situation, and our delegation that talked to the FDIC last night made that clear,” he said on CBS’s “Face the Nation.” “I don’t think you’re going to get a private seller without the Treasury Department and FDIC being actively engaged in having, helping liquidity with these Treasury bonds.”
Sen. Alex Padilla, D-Calif., echoed Biden’s comments about bank managers and said Congress should revisit FDIC deposit insurance limits.
“The events of the past few days have made clear that there must be accountability for the bank managers and executives who paid themselves millions of dollars in bonuses and sold off stock days before SVB collapsed,” Padilla said in a statement.
Meanwhile, some lawmakers blamed SVB’s troubles on a bipartisan 2018 law that eased capital requirements established after the 2008 financial crisis for smaller banks. Two Democrats on the Senate Banking Committee, Sens. Mark Warner of Virginia and Jon Tester of Montana, co-sponsored the bill introduced by Sen. Michael D. Crapo, R-Idaho, then the committee chairman.
“Five years ago, the Republican Director of the Congressional Budget Office released a report finding that this legislation would ‘increase the likelihood that a large financial firm with assets of between $100 billion and $250 billion would fail,” Sen. Bernie Sanders, I-Vt., said in a statement. Sanders, an independent, caucuses with Democrats.
“Let us have the courage to stand up to Wall Street, repeal the disastrous 2018 bank deregulation law, break up too big to fail banks and address the needs of working families, not the risky bets of vulture capitalists,” Sanders said.
Rep. Katie Porter, D-Calif., who is running to replace the retiring Sen. Dianne Feinstein, D-Calif., also blamed the 2018 law.
“The collapse of Silicon Valley Bank was totally avoidable. In 2018, Wall Street pushed a deregulation bill that allowed banks like SVB to take reckless risks. It passed, even as I and many others warned of the risks,” she said in a tweet. “I am writing legislation to reverse that law.”
David Lerman contributed to this report.
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