As I reported on Friday, federal regulators have been busy through the weekend to stem any fiscal panic related to the collapse of Silicon Valley Bank (SBV), an institution geared to aiding startup companies.
Federal regulators have now announced that SBV customers will have access to their deposits starting on Monday, in an effort to shore up deposits and stem any broader financial fallout from the collapse.
The boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, in consultation with President Joe Biden, approved the FDIC’s resolution of SVB, according to a joint statement from U.S. Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin Gruenberg on Sunday evening.The move will not lead to losses by American taxpayers and all depositors will be made whole, the statement said.”Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” the statement said. “This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”
This comes shortly after Treasury Secretary Janet Yellen announced that the federal government will not bail out SVB.
Despite this, Yellen told CBS News Sunday morning, that a bailout like the one in 2008 is not on the table – though she said she is concerned about the investors.’Let me be clear that 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 we are not going to do that again,’ she said.’But we are concerned about depositors, and we’re focused on trying to meet their needs.’
Of course, this is the same Yellen that said inflation — which is at the heart of the SVB problems — was “transitory”.
So it isn’t a “bailout”…but depositors are being “protected”.
A senior US Treasury official said the firms were not being bailed out, but depositors were being protected.Silicon Valley Bank equity and bondholders would be wiped out, said the official, who briefed reporters after the announcement.The Biden administration will work with Congress and financial regulators to consider additional actions to further strengthen the financial system, the official said.
The official announcement of this assistance to depositors also included a troubling, new detail: Signature Bank was also teetering.
Signature Bank had 38 private client offices throughout New York, Connecticut, California, and North Carolina.It was founded in 2001 for wealthy clients, with more than $250,000 in assets.’We are going after the guy who started his business in Brooklyn and is now worth $20 million,’ said founder and chief executive Joseph DePaolo in an interview with Crain’s New York Business.Sunday’s statement continued: ‘We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole.’As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.’
Signature Bank is one of the main banks to the cryptocurrency industry.
It had a market value of $4.4 billion as of Friday, according to FactSet. The stock had fallen nearly 40% this year after its crypto banking peer Silvergate Capital liquidated its bank.As of Dec. 31, Signature had $110.4 billion in total assets and $88.6 billion in total deposits, according to a securities filing.
U.S. stock futures rallied in Asian trade as their markets opened on Monday, in the wake of this announcement.
Investors reacted by sending U.S. S&P 500 stock futures up 0.9%, while Nasdaq futures rose 1.1%.Yet, such was the concern about financial stability, that investors speculated the Fed would now be reluctant to rock the boat by hiking interest rates by a super-sized 50 basis points this month.Fed fund futures surged in early trading to imply only a 28% chance of a half-point hike, compared to around 70% before the SVB news broke last week.
I suspect all eyes will be on Wall Street Monday, to see if the panic truly has been stemmed by these moves.
CLICK HERE FOR FULL VERSION OF THIS STORY