US and UK seek to stem fallout from Silicon Valley Bank collapse

NEW YORK (AP) — Governments in the UK and US have taken extraordinary steps to thwart a possible banking crisis after the historic failure of Silicon Valley Bank, despite the closure of another major bank. I taught.

The UK Treasury and the Bank of England announced earlier Monday that they had facilitated the sale of Silicon Valley Bank to HSBC, the UK’s largest bank in Europe, securing £6.7bn ($8.1bn) of deposits. bottom.

British officials have worked all weekend to find a buyer for the California-based bank’s British subsidiary. Its failure was the second largest bank failure in history.

US regulators also tried to find buyers throughout the weekend. Those efforts appeared to have failed on Sunday, but US officials assured all depositors that they would have quick access to all their funds.

The announcement comes amid concerns that the factors that led to the collapse of the Santa Clara, Calif.-based bank may spread.

In a sign of how quickly the financial bleeding is progressing, regulators announced that a New York-based undersigned bank also failed and was seized on Sunday. With over $110 billion in assets, Signature Bank is the third largest bank failure in US history.

Near-financial-crisis conditions made Asian markets nervous as trading opened on Monday. Japan’s benchmark Nikkei 225 fell his 1.6% in morning trading, Australia’s S&P/ASX 200 fell 0.3% and South Korea’s Kospi fell 0.4%. However, Hong Kong’s Hang Seng rose his 1.4% and the Shanghai Composite he rose 0.3%.

To increase confidence in the banking system, the Treasury Department, Federal Reserve and FDIC announced on Sunday that all customers of Silicon Valley banks will be protected and have access to funds. They also announced measures to protect bank customers and prevent further bank crackdowns.

“This action ensures that the U.S. banking system continues to play its vital role in protecting deposits and providing access to credit for households and businesses in a way that fosters strong and sustainable economic growth. will be done,” the agencies said in a joint statement.

Under the plan, Silicon Valley Bank and Signature Bank depositors will be able to access their money on Monday, including holders above the $250,000 insurance limit.

Also on Sunday, another bank in trouble, First Republic Bank, announced it had bolstered its financial health by raising money from the Fed and JPMorgan Chase.

In a separate announcement, the Fed announced late Sunday a massive emergency lending program aimed at staving off a wave of bank runs that threaten the stability of the banking system and the economy as a whole. It characterizes the program as similar to what central banks have been doing for decades. Free lending to the banking system so that customers can be confident that they can access their accounts whenever they need them.

The loan facility allows banks that need to raise cash to pay their depositors the ability to borrow that money from the Fed rather than raising the money by selling government bonds and other securities. Silicon Valley Bank was forced to sell some of its Treasury bonds at a loss to fund customer withdrawals. Under the Fed’s new program, banks can pledge these securities as collateral and borrow from the Emergency Facility.

The Treasury has set aside $25 billion to offset losses incurred under the Fed’s Emergency Loan Facility. However, Fed officials do not expect the funds to need to be used given the very low risk of default on the securities pledged as collateral.

Analysts said the Fed’s program was enough to calm financial markets.

“Monday will be a stressful day for many in the regional banking sector, but today’s actions dramatically reduce the risk of further contagion,” economists at investment bank Jefferies said in a research note.

Sunday’s action was the most sweeping government intervention in the banking system since the 2008 financial crisis, but the action is relatively limited compared to what happened 15 years ago. The two failed banks themselves have not been bailed out, and taxpayer money has not been provided to banks.

President Joe Biden said he would speak to the bank on Monday as he boarded Air Force One to return to Washington on Sunday night. In his statement, Biden said, “We will continue our efforts to hold those responsible for this mess to full accountability and to increase oversight and regulation of large banks to ensure we are not in a position like this again.” I am firmly committed to doing so,” he said.

Regulators had to rush to shut down Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday. Friday saw the traditional run on banks as depositors tried to withdraw their funds en masse. This is the second largest bank failure in US history, after the Washington Mutual failure in 2008.

Some high-profile Silicon Valley executives feared that if Washington didn’t bail out the failing banks, their customers would turn to other financial institutions in the coming days. Shares of other banks for technology companies, including First Republic Bank and PacWest Bank, have plummeted in recent days.

Some of the bank’s customers include various companies in the California wine industry, many of which rely on Silicon Valley Banks for financing, and technology start-ups dedicated to combating climate change. . Sunrun, which sells and leases solar energy systems, had less than $80 million of his cash deposits in Silicon Valley. Clothing retail website Stitchfix recently revealed it has a line of credit of up to $100 million to 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 from an airport restroom to LinkedIn on Sunday, announcing that the bank crisis had hit her. We said we were testing resilience. Her money was tied up with Silicon Valley Bank, so she had to pay her employees out of her personal bank account. She said she was relieved to hear that the government’s intention was to keep depositors healthy, as she was supposed to help her two of her teens go to college.

“Small businesses and early-stage startups don’t have many avenues to leverage leverage in situations like this. It’s often put down, especially for me as a black female founder, it’s the first thing to think about,” Dufu told the Associated Press.

Silicon Valley Bank began to fall into bankruptcy when its customers, mostly technology companies struggling to raise funds and in need of cash, began to withdraw their deposits. Banks had to sell bonds at a loss to cover their withdrawals, leading to the largest bankruptcy of a US financial institution since the height of the financial crisis.

Treasury Secretary Janet Yellen has pointed to rising interest rates, which the Federal Reserve has raised to combat inflation, as a major problem for Silicon Valley banks. Many assets, such as bonds and mortgage-backed securities, lost market value as interest rates rose.

Sheila Bair, who served as chairman of the FDIC during the 2008 financial crisis, recalls that almost all banks failed at that time. And usually a healthy acquirer wanted to optimize the franchise value for large depositors, so they also cover the uninsured. This is the best result. “

But as for Silicon Valley Banks, NBC’s “Meet the Press” said, “This was a liquidity failure, a crackdown on banks, and they didn’t have time to prepare to pitch the banks. So they We have to do it now and we have to catch up.” US and UK seek to stem fallout from Silicon Valley Bank collapse

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