SVB Collapse: Fears of Financial Crisis After Bank Fails, US Gov’t Rules Out Bailout
By Staff, Agencies
US regulators rushed to seize the assets of Silicon Valley Bank [SVB] on Friday after a run on the bank, the largest failure of a financial institution since the height of the financial crisis more than a decade ago.
Silicon Valley, the country's 16th largest bank, failed after depositors – mostly technology workers and venture capital-backed companies – hurried to withdraw their money this week as anxiety over the bank’s situation spread.
The bank could no longer cope with the massive withdrawals of its customers and its last attempts to raise new money did not succeed.
US authorities therefore officially took possession of the bank and entrusted its management to the US agency responsible for guaranteeing deposits, the Federal Deposit Insurance Corporation [FDIC].
Little known to the general public, SVB had specialized in financing start-ups and had become one of the largest banks in the US by asset size: at the end of 2022, it had $209 billion [€196 billion] in assets and about $175.4 billion [€164.5 billion] in deposits.
Its demise represents not only the largest bank failure since that of Washington Mutual in 2008, but also the second-largest failure of a retail bank in the United States.
US Treasury Secretary Janet Yellen called several financial sector regulators together on Friday to discuss the situation, reminding them that she had "full confidence" in their ability to take appropriate action and that the banking sector remained "resilient".
The four largest US banks lost $52 billion [€49 billion] on the stock market on Thursday and in their wake, Asian and then European banks floundered.
Concerns about the failure of SVB have spread around the world, as investors fretted about the broader risks to the global banking sector and any potential spillover effect.
In Paris, Société Générale lost 4.49 per cent, BNP Paribas 3.82 per cent and Crédit Agricole 2.48 per cent. Elsewhere in Europe, the German bank Deutsche Bank dropped 7.35 per cent, the British bank Barclays 4.09 per cent and the Swiss UBS 4.53 per cent.
On Wall Street, the big banks recovered Friday after the rout of the previous day: JPMorgan Chase took 2.54 per cent while Bank of America and Citigroup lost less than 1 per cent
Mid-sized banks or more focused on one type of customer, on the other hand, faced greater in turmoil, with First Republic, for example, dropping nearly 15 per cent and Signature Bank, close to the cryptocurrency scene, dropped 23 per cent.
Moreover, the collapse of SVB, which courted Chinese start-ups, has caused widespread concern in China, where a string of founders and companies rushed to appease investors by saying their exposure was insignificant or nonexistent.
The SPD Silicon Valley Bank, which was owned 50-50 owned by SVB and local partner Shanghai Pudong Development Bank, said Saturday that its operations were “sound.”
“The bank has a standardized corporate governance structure and an independent balance sheet,” it said in a statement. “As China’s first technology bank, SPD Silicon Valley Bank is committed to serving Chinese science and technology companies, and has always had sound operations in accordance with Chinese laws and regulations.”
Relatedly, US President Joe Biden said Sunday that at his direction Treasury Secretary Janet Yellen and his top economic adviser Lael Brainard worked with financial regulators to ensure households and businesses affected by the SVB and Signature Bank failures could access their deposits, and he promised to hold those responsible accountable.
“I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe. The solution also ensures that taxpayer dollars are not put at risk,” Biden said in the statement.
“I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again,” he added.
Treasury officials briefed a bipartisan group of lawmakers from both chambers of Congress Sunday evening, and Biden plans to make remarks Monday on maintaining a “resilient banking system.”
The Biden administration decided to move forward with dramatic emergency actions Sunday to extend a federal backstop to all of Silicon Valley Bank’s deposits in order to ensure access to all of those funds on Monday, according to a senior Treasury official.
In an interview with CBS Sunday, Yellen said the US government wanted "to make sure that the troubles that exist at one bank don't create contagion to others that are sound."
She added that the government was working with the US deposit guarantee agency, the FDIC, on a "resolution" of the situation at SVB, where approximately 96 percent of deposits are not covered by the FDIC's reimbursement guarantee.
"I'm sure they [the FDIC] are considering a wide range of available options that include acquisitions," she said.
Virginia Democratic Senator Mark Warner said in an interview with ABC on Sunday that the "best outcome" would be to find a buyer for SVB before markets open in Asia.
Future contracts on the flagship indices of the Tokyo and Hong Kong stock exchanges were pointing to an opening decline of just under 2 percent.
Since Friday, there have been calls from the tech and finance sectors for a bailout.
Yellen said that reforms made after the 2008 financial crisis meant the government was not considering this option for SVB.
"During the financial crisis, there were investors and owners of systemic large banks that were bailed out... and the reforms that have been put in place means that we're not going to do that again," she said.
