The US government has announced that individuals and businesses with money deposited with the defunct US bank Silicon Valley Bank (SVB) will be able to access their funds beginning on Monday.
The US Treasury, the Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) stated in a joint statement that depositors would be fully protected. The taxpayer will incur no losses as a result of the change, according to the statement. Friday, SVB was closed by regulators who seized its assets.
The move occurred as the company, a leading tech lender, scrambled to raise funds to cover a loss from the sale of assets affected by rising interest rates.
"The US banking system remains resilient and on a solid foundation, thanks in large part to post-crisis reforms that improved safeguards for the banking industry," the authorities mentioned in a joint statement. Together, these reforms and today's actions demonstrate our commitment to take the necessary steps to ensure the security of depositors' funds.
These measures also apply to Signature Bank of New York, the second-most-vulnerable financial institution after SVB, which was placed under regulatory oversight on Sunday. As part of their efforts to restore confidence, regulators introduced a new method for banks to access emergency funds.
Through its new Bank Term Funding Program, the Federal Reserve will make it easier for banks to borrow from it during a crisis. President Joe Biden stated that the American people could "trust that their bank deposits will be accessible when needed."
SVB was regarded as a crucial lender for startups in the technology industry. It was the banking partner for nearly half of the United States' venture-backed technology and healthcare companies that went public last year.
SVB was founded in California in 1983 and has grown rapidly over the past decade. It primarily banked Silicon Valley's tech elite — startups and venture capitalists — in Silicon Valley. And these Silicon Valley elites tend to have a libertarian streak in their politics: the standard view is that the government is too slow and too large. However, it came under pressure as rising interest rates made it more difficult for startups to raise capital via private fundraising or share sales.
In Silicon Valley, the financial ramifications of the collapse have reverberated throughout the region as businesses ponder their future. Paul Ashworth, chief North America economist at Capital Economics, stated that the U.S. government acted aggressively to prevent a contagion from spreading.
"In the digital era, this should be sufficient to prevent any contagion from spreading and bringing down additional banks. However, contagion has always been more about irrational fear, so we must highlight that there is no guarantee that this will work," he continued. In the interim, an offer has been made for SVB's UK subsidiary. The UK Treasury has received an official offer from a consortium of investors led by the Bank of London, a UK clearing bank.
The British government has been developing a plan to assist British technology companies affected by SVB's bankruptcy.