The recent collapse of Silicon Valley Bank (SVB) has caused concern among its depositors, who have been scrambling to access their funds. However, in a joint statement from the US Treasury, the Federal Reserve, and Federal Deposit Insurance Corporation (FDIC), it was announced that depositors would be fully protected, and the taxpayer would not bear any losses from the move.
SVB was seized by regulators on Friday, making it the largest failure of a US bank since the financial crisis in 2008. The bank, a key lender to the tech industry, was struggling to raise funds to cover losses incurred from the sale of assets affected by higher interest rates.
The authorities’ joint statement highlighted the resilience of the US banking system, attributing it to the reforms made after the 2008 financial crisis, which included better safeguards for the banking industry. The statement emphasized the commitment to taking the necessary steps to ensure depositors’ savings remain safe.
The move to protect depositors also applies to Signature Bank of New York, which came under regulatory control on Sunday. As part of their efforts to restore confidence, regulators unveiled a new way to give banks access to emergency funds. The Federal Reserve introduced a Bank Term Funding Program, which would make it easier for banks to borrow from it in a crisis.
The announcement has been welcomed by depositors, who were worried about their funds being inaccessible. However, some have criticized the move, claiming that influential tech executives have been given preferential treatment. Critics argue that it is ironic that the government has stepped in to save the day for Silicon Valley elites who typically view the government as slow and too big.
SVB was mainly serving start-ups and venture capitalists in Silicon Valley, who are considered part of the tech elite. The collapse of the bank has raised questions about what it means for the finances of these companies. While the US authorities acted aggressively to prevent the contagion from developing, there is no guarantee that this will work.
Paul Ashworth, Chief North America Economist at Capital Economics, said that “rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age.”
Meanwhile, a consortium of investors led by the Bank of London has submitted a formal bid to the UK Treasury for SVB’s UK arm. The British government has been working on a plan to support UK tech firms affected by the collapse of SVB.
Overall, the collapse of SVB has raised concerns about the stability of the banking system, particularly in the tech industry. However, the authorities’ swift action to protect depositors has been reassuring, and the introduction of a new way for banks to access emergency funds could prevent the contagion from spreading.