US Says Deposits At Silicon Valley Bank Safe, New Backstop For Lenders Created

The Treasury Department, Federal Reserve, and Federal Deposit Insurance Corp. jointly announced the efforts aimed at strengthening confidence in the banking system after SVB’s failure spurred concern

The US government on Sunday tried to stop jitters among public on the health of the nation’s financial system following the collapse of Silicon Valley Bank (SVB), as reported by news agency Bloomberg on Monday. The US authority is pledging to fully protect all depositors’ money, while also giving any banks squeezed for cash easier terms on short-term loans, the report said.

As Bloomberg reported, the Treasury Department, Federal Reserve, and Federal Deposit Insurance Corp. jointly announced the efforts aimed at strengthening confidence in the banking system after SVB’s failure spurred concern about spill over effects.

The collapse of SVB collapse into FDIC receivership, the second-largest US bank failure in history behind Washington Mutual in 2008, came suddenly on Friday, following a frenetic couple of days where its long-established customer base of tech start-ups yanked deposits. After SVB’s collapse, a number of other regional lenders saw their shares plunge amid concerns about the financial stability of smaller banks.

Janet Yellen, Treasury secretary, said the actions will protect “all depositors,” signalling help to those whose accounts exceed the typical $250,000 threshold for FDIC insurance, as the news agency stated.

SVB depositors “will have access to all of their money starting Monday (March 13),” the government said in a statement, adding that taxpayers won’t be responsible for any losses associated with SVB’s resolution.

The government also said Signature Bank was closed by New York state financial regulators on Sunday and all depositors there will also have access to their money on Monday.

A senior Treasury official, in a briefing call with reporters, said there are other banks that appeared to be in similar situations to SVB and Signature and regulators had concerns about their depositors. The official also said the steps didn’t constitute a bailout, as equity and bondholders of SVB and Signature would be wiped out.

The Fed in a separate statement said it’s creating a new “Bank Term Funding Program” that offers loans to banks under easier terms than are typically provided by the central bank.

Fed officials said on a briefing call that the facility will be big enough to protect uninsured deposits in the wider US banking system. It was invoked under the Fed’s emergency authority allowing for the establishment of a broad-based program under “unusual and exigent circumstances,” which requires Treasury approval.