Regulators Announce Plan to Protect Depositors at Silicon Valley Bank

On Sunday, banking regulators announced a plan to support depositors at Silicon Valley Bank (SVB), which was facing systemic contagion fears due to its tech-focused focus.

FDIC, Top Government Officials Approve Major Resolution

The boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, in consultation with President Joe Biden, approved the FDIC’s resolution of SVB, according to a joint statement from U.S. Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin Gruenberg on Sunday evening.

The move will not lead to losses by American taxpayers and all depositors will be made whole, the statement said.

“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” the statement said. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”

The move was designed to avoid a possible panic and ensure public confidence in the banking system.

Depositors at SVB and Signature Bank, which was closed over similar fears, would have full access to their deposits, which would be fully protected by the FDIC’s deposit insurance fund.

Shareholders Foot the Bill

Shareholders and some unsecured creditors would not be protected, and they would lose all of their investments.

The Treasury Department designated both SVB and Signature as systemic risks, which would allow it to unwind both institutions in a way that fully protected all depositors.

Fed to Safeguard Impacted Institutions

The Federal Reserve announced the creation of a new Bank Term Funding Program that aimed to safeguard institutions impacted by the market instability of the SVB collapse.

The program would offer loans of up to one year to banks, saving associations, credit unions, and other institutions, with borrowers pledging high-quality collateral.

The Fed also said it would ease conditions at its discount window, which would use the same conditions as the BTFP but offer more favorable terms.

Markets React Positively

The news was positively received by the markets, with futures tied to the Dow Jones Industrial Average leaping more than 250 points in early trading, and cryptocurrency prices also rallying strongly, with Bitcoin up more than 7%.

Historical Collapse

The SVB failure was the nation’s largest collapse of a financial institution since Washington Mutual in 2008. The move was not designed as a bailout, and Treasury Secretary Janet Yellen emphasized that there would be no SVB bailout.