All deposits at Silicon Valley Bank are guaranteed by the US government, and funds will be available on Monday.
Financial regulators announced new facilities to backstop deposit withdrawals across the banking system in response to concerns of contagion following Silicon Valley Bank’s shocking failure last week. They also stated Sunday night that depositors of the failed Silicon Valley Bank will have access to all of their money beginning Monday, March 13.
The heads of the Federal Reserve, Treasury Department, and FDIC said in a joint statement: “After receiving a recommendation from the FDIC and Federal Reserve boards 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.”
Beginning on Monday, March 13, depositors will have access to all of their funds, the statement continued. “Taxpayers will not incur any losses resulting from Silicon Valley Bank’s resolution.”
Additionally, the Federal Reserve announced that it will provide liquidity to banks through a new facility to help ensure that banks can fulfil all depositor withdrawals, basically reserving funds to backup all deposits — insured and uninsured — throughout the U.S. banking system.
The Fed’s funding will be made available through the establishment of a new Bank Term Funding Programme (BTFP), which will grant loans to banks, savings associations, and credit unions for a period of up to one year in exchange for collateral such as U.S. Treasury securities, agency debt, mortgage-backed securities, and other eligible assets.
The BTFP, in accordance with the Fed, will provide an additional source of liquidity against high-quality securities, obviating the necessity for an institution to sell those securities promptly during stressful circumstances.
“The Federal Reserve is prepared to address any liquidity pressures that may arise,” the central bank stated in a release. By taking this measure, the banking sector will be better able to protect deposits and guarantee that credit and money will continue to flow into the economy.
The lending facility will be backed by a $25 billion exchange stabilisation fund at Treasury, which officials do not anticipate using, and is intended by the Fed to cover all insured deposits in the U.S. banking system.
On a call with the media on Sunday evening, Fed officials stated that these moves were intended to increase liquidity, lessen contagion, and help prevent contagion to small, medium, and big banks.
The Fed only makes loans against the value of bank securities, not actual purchases of those securities. Fed officials emphasised that banks are receiving longer-term cash at a higher valuation and lower risk, not being bailed out.
A Treasury official said on a call with the media late Sunday that the government did solicit offers for the assets of Silicon Valley Bank, but officials decided against holding an auction due to the uncertainty of the situation.
Regulators decided it would be better to rely on the deposit insurance fund to ensure money will be available to depositors because the government plans to open banks Monday morning.
Treasury officials pointed out that there are some institutions that resemble Silicon Valley Bank, and there are still concerns about the depositors at those institutions.
Similar to the Fed’s stance, Treasury officials emphasised that these moves safeguard depositors, not investors, and disputed the idea that they amount to a bailout given that Silicon Valley Bank’s equity and bonds will be completely wiped out.
Regulators also disclosed a comparable systemic risk exemption for Signature Bank (SBNY), which was shut down on Sunday by its state chartering body, in their joint statement. This institution will make all depositors whole. As with Silicon Valley Bank’s bankruptcy, the taxpayer won’t incur any losses.
The demise of Signature Bank ranks third among all U.S. banks.
As of Friday, Silicon Valley Bank was the second-largest bank collapse in American history, after Seattle’s Washington Mutual, which failed at the height of the 2008 financial crisis. Additionally, it was the first bank failure since 2020.