On Sunday night, financial regulators announced that depositors of the collapsed Silicon Valley Bank will be able to withdraw all of their funds starting from Monday, March 13. Additionally, the regulators also introduced new measures to support deposit withdrawals throughout the banking system in response to concerns of potential spread of financial instability following SVB’s sudden collapse last week.
The heads of the Federal Reserve, Treasury Department, and FDIC said: “After receiving a recommendation from the boards of the FDIC and the Federal Reserve, 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.”
“Depositors will have access to all of their money starting Monday, March 13,” the statement added. “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
The Federal Reserve has announced that it will establish a new facility to provide funding to banks, enabling them to fulfill all depositor withdrawal requests. This measure aims to provide support for all types of deposits, including those that are insured and uninsured, and to backstop the entire financial system of the United States.
The Federal Reserve will provide financing for the Bank Term Funding Program (BTFP), which will offer loans to banks, credit unions, and savings associations for up to one year. The loans will be backed by qualifying assets such as U.S. Treasuries, mortgage-backed securities, and agency debt, which will be pledged as collateral.
The Federal Reserve has stated that the Bank Term Funding Program (BTFP) will serve as an extra funding option for high-quality securities, removing the pressure on institutions to sell these securities in times of financial distress. Additionally, the Fed has indicated that it is closely monitoring the ongoing developments in the financial markets.
“The Federal Reserve is prepared to address any liquidity pressures that may arise,” the central bank said in a release. “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.”
The Federal Reserve has created a lending program that aims to cover all insured deposits in the U.S. banking system. The program will be supported by a $25 billion exchange stabilization fund held by the Treasury. However, officials do not anticipate that the fund will be necessary for the program.
During a media call on Sunday evening, officials from the Federal Reserve stated that the purpose of these measures is to increase liquidity and decrease the likelihood of contagion, thereby preventing the spread of financial instability to banks of all sizes.
The Federal Reserve is not buying securities from banks, but rather providing loans based on their book value. Officials from the Fed emphasized that no bank is receiving a bailout, and that the banks are simply receiving longer-term funding with a higher value and lower risk.
Auction delayed, Signature Bank seized
During a media call on Sunday evening, a Treasury official mentioned that although the government did solicit bids for Silicon Valley Bank’s assets, they decided against an auction due to the rapidly changing situation. Instead, regulators opted to rely on the deposit insurance fund to ensure depositors would have access to their funds when the banks opened on Monday.
The Treasury officials acknowledged that there are other banks similar to Silicon Valley Bank that may raise concerns for depositors, and reiterated that the actions taken were to protect depositors, not investors. They also rejected the idea that this constituted a bailout since equity and bondholders in Silicon Valley Bank would not receive any compensation.
In a joint statement, regulators also announced that Signature Bank (SBNY) was closed on Sunday by its state chartering authority, and that all depositors of this bank would be reimbursed. As with Silicon Valley Bank, taxpayers would not bear any losses.
The closure of Signature Bank represents the third largest bank failure in the United States.
Silicon Valley Bank’s collapse on Friday made it the biggest bank failure since Washington Mutual in Seattle during the peak of the 2008 financial crisis. It is the second largest bank failure in the history of the United States, with only Washington Mutual being larger. Additionally, it is the first bank to fail since the year 2020.