Customer deposits of Silicon Valley Bank they will all be guaranteed, as well as those of the Signature Bank, second bank closed yesterday. These are the extraordinary measures taken by the American government to prevent the failure of these two institutions from causing a contagion effect capable of overwhelming the entire country. “Today we are taking decisive action to protect the US economy by strengthening public confidence in our banking system,” Treasury Secretary Yellen, Federal Reserve Head Powell and Federal Deposit Insurance Corporation President announced in a joint statement. This step will ensure it continues to fulfill its vital roles of protecting deposits and providing access to credit for households and businesses, in a way that promotes strong and sustainable economic growth.”
Silicon Valley Bank bankruptcy, what you need to know and what can happen now
by Flavio Bini
The showdown will take place this morning, when the markets reopen. Hedge fund manager Bill Ackman warned on Saturday that if the government did not take concrete steps within hours, today we risked an economic meltdown. In the same hours, President Biden had discussed the emergency with the governor of California Newsom, to evaluate “the initiatives necessary to deal with it”, thus clarifying that it was not a small regional problem.
Yellen responded yesterday morning with an interview on CBS. First, you tried to reassure the world: “The US banking system is really safe and well capitalized. It’s resilient.” Then you clarified that “the difficulties of the technology sector are not at the heart of the problems of this bank”. Then she guaranteed that there will be no bailouts like in 2008, criticized because taxpayers had paid for the mistakes of greedy financial sector maneuverers: “We won’t do it again. The reforms adopted prevent it”. However, Yellen promised to intervene: “We are concerned about depositors and are focused on trying to meet their needs. I have been working all weekend with bank regulators to design appropriate policies to address the situation.”
The problem is that the FDIC guarantees deposits of up to $250,000, yet 95% of SVB accounts contain much higher sums. The customers are companies and start-ups in the digital sector, which without access to their money don’t know how to go forward, starting with the payment of salaries. So the solution the authorities were working on was to find buyers, to whom to sell the whole bank or individual parts, to raise funds with which to repay uninsured deposits. Bids had to be submitted by two o’clock yesterday afternoon. The second option was to declare the bankruptcy of Svb, to which in the meantime was added that of Signature Bank, a systemic risk for the financial sector, because this allowed extraordinary measures to be taken, and this is the path that was chosen yesterday evening.
To understand the drama of the situation, the Camp toy store chain is offering 40% discounts to recover the cash it needs to survive, because its money was all deposited with Svb. More than 3,500 CEOs of small companies with 220,000 employees have signed a petition asking Yellen to guarantee deposits. Sam Altman, co-founder of OpenAI, has sent money from his own pocket to entrepreneurs who ask him for help, so as not to lose dozens of small companies on which the technological future of the US depends.
