US pledges measures to protect Silicon Valley Bank deposits

US Treasury Secretary Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell and Federal Deposit Insurance Corp. Chairman Martin J. Gruenberg released a joint statement Sunday saying they would complete the resolution of the Silicon Valley Bank (SVB) whilst protecting depositors.

"Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank (SVB) will be borne by the taxpayer," they said in a joint statement.

The reason authorities believe the taxpayer will incur no cost is that authorities administrating the bank will be able to use its remaining assets to cover the costs of reimbursing depositors.

The same will also apply to Signature Bank. On Sunday, the New York State Chartering Authority closed down the cryptocurrency-exposed lender that had lost around a third of its share price value in the second half of the week. 

President Joe Biden on Monday moved to reassure Americans.

"No losses will be borne by the taxpayers" while the government is ensuring depositors get their money back, he said.

Biden added that the money would come from the fees banks pay into the deposit insurance.

"Americans can have confidence that the banking system is safe," he said. "Your deposits will be there when you need them."

On Friday, US regulators pulled the plug on SVB in the largest bank failure since the 2008/2009 financial crisis after a sudden run on deposits.

Germany says no threat to stability in country

Germany's financial supervisory authority, BaFin, said the collapse of SVB would not impact the country.

"The distressed situation of Silicon Valley Bank Germany Branch does not pose a threat to financial stability," BaFin said.

The financial regulator added it had ordered a moratorium on the bank's German branch. Total assets at the Frankfurt-based branch amounted to just under €790 million (843 million) at the end of 2022, according to BaFin.

What else did Yellen say?

The statement said senior bank management would be removed, and shareholders and certain unsecured debt holders would not be protected.

The Federal Reserve Board also said it would make available "additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors."

FDIC insures deposits up to $250,000 (roughly €235,000), but many of the companies and wealthy people who used the bank had more than that amount in their accounts.

US House Speaker Kevin McCarthy told Fox News he hoped that Silicon Valley Bank would ultimately be bought.

"I think that would be the best outcome to move forward and cool the markets and let people understand that we can move forward in the right manner," he said.

US banking system 'resilient'

China and Hong Kong stocks rose on Monday, after the news of US authorities stepping in to limit the fall of SVB. The blue-chip CSI 300 Index and Hong Kong's Hang Seng benchmark were up more than 0.5% each in early morning trade. Japan's Nikkei was down by 1.6%.

Yellen tried to reassure those concerned about a possible domino effect from the failure of SVB. She insisted that the US banking system was safer than during the financial crisis almost 15 years ago, which led to several bank bailouts.

"The American banking system is really safe and well capitalized," Yellen said. "It's resilient."

Following the 2008 failure of Lehman Brothers and the ensuing financial meltdown, US regulators required major banks to hold additional capital in case of trouble. 

But some analysts have warned that some regional US banks could be in trouble, as was demonstrated by Signature Bank's closure on Sunday. 

Crypto exchange Bitstamp said it would continue to operate normally despite the closure of Signature Bank. Coinbase said on Twitter that it expected to fully recover $240 million (€223 million) balance in corporate cash at Signature.

What was Silicon Valley Bank?

SVB was little known to the public, but was a key lender to technology startups in the US and globally and had strong relationships with venture capital firms.

By the end of 2022, it had become the 16th largest US bank by assets, with $209 billion in assets and approximately $175.4 billion in deposits.

However, the bank was hit by aggressive interest rate hikes by the US central bank in the last year, which crimped financial conditions in the startup space.

Many of SVB's assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.

Then its customers — largely technology companies that needed cash as they struggled to get financing — began withdrawing their deposits.

The bank had to sell bonds at a loss to cover the withdrawals.

HSBC to buy SVB's UK branch 

Britain's Treasury chief Jeremy Hunt said the government and the Bank of England had facilitated a private sale of the UK arm of Silicon Valley Bank to HSBC Holdings. This move is said to protect depositors without affecting taxpayers. 

Other British institutions such as the Bank of London and OakNorth Bank had earlier expressed interest in buying the branch as well. Lloyds Banking Group and NatWest Group were said to have been approached about a possible emergency takeover.

In the US, observers at technology news site "The Information" have said it is unlikely that big banks like JPMorgan Chase or Bank of America will join in the race to take over SVP, noting that it's more plausible that smaller regional banks like PNC Financial, US Bank, Trust or Capital One would look to get involved.

Further impacts elsewhere in the world

Governments around the world said they were trying to find solutions to limit the potential hit to companies from the collapse of SVB, which has subsidiaries in Canada, Europe and a joint venture in China.

The state minister for technology in India said Sunday he will meet startups this week to assess the impact of the collapse.

The South Asian country has one of the world's biggest startup markets, with many clocking multibillion-dollar valuations in recent years and backed by foreign investors.

"[I] spoke to some founders and it is very bad," Ashish Dave, CEO of Mirae Asset Venture Investments (India), wrote in a tweet.

"Especially for Indian founders [...] who set up their US companies and raised their initial round, SVB is default bank. Uncertainty is killing them. Growth ones are relatively safer as they diversified. Last thing founders needed."

German business daily Handelsblatt said SVB had 3,600 customers in Europe. Around 10% of them were said to come from Germany.

Meanwhile, Israel's banking regulator Yair Avidan said he was closely monitoring for "immediate developments" from the collapse as well for those that could happen in the future.

Israel's tech sector is the country's main growth engine and its relationship with the Silicon Valley region is strong.

Many Israel-based startups had accounts at SVB, although the amounts are not fully known.

js,mm/msh (AFP, AP, Reuters)