In the biggest failure of a US bank since the 2008 financial crisis, regulators seized the assets of Silicon Valley Bank (SVB.O) and Signature Bank (SBNY.O) last Friday and Sunday, respectively. SVB, a key lender for early-stage tech businesses, had been struggling to raise funds to offset losses due to the sale of assets affected by higher interest rates. Meanwhile, Signature Bank had seen its securities erode as interest rates rose, with almost a quarter of its deposits coming from the cryptocurrency sector.
To reassure customers and financial markets, US officials from the Treasury, Federal Reserve, and Federal Deposit Insurance Corporation (FDIC) released a joint statement on Sunday evening. It confirmed that depositors of both banks would be fully protected, and that depositors whose funds exceeded the maximum government-insured level would also be made whole. The statement emphasized that the move would not lead to losses for American taxpayers.
The announcement sent stock indexes up in early Asia trading, but left questions unanswered about potential buyers for the banks, and left equity and bondholders of the failed institutions with steep losses. SVB, in particular, was the banking partner for almost half of US venture-backed technology and healthcare companies that listed on stock markets last year.
Despite the challenges ahead, the officials emphasized the importance of protecting the US banking system to promote strong and sustainable economic growth. In their statement, they said, “Today we are taking decisive actions to protect the US economy by strengthening public confidence in our banking system. This step will ensure that the US banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses.”
The move to protect depositors came as a relief to customers of the two failed banks, who will have access to their deposits starting on Monday.
