US Fed moves to protect Silicon Valley bank deposits – and halt further withdrawals

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The US Treasury Department has intervened after the collapse of Silicon Valley Bank (SVB) to guarantee deposits and prevent a wider bank run shock.

Treasury Secretary Janet Yellen, Federal Reserve Board Chairman Jerome Powell, and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg issued a joint statement Sunday night amid concerns of the contagion spreading on Monday, calling for an emergency rescue The program has been created. All deposits at both California-based SVB and New York’s Signature Bank.

The intervention expands an existing FDIC plan, which guarantees the first US$250,000 deposit. But the problem for startups and investors is that many had millions or even hundreds of millions of dollars deposited with SVB.

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More than 90 per cent of the funds deposited in the 40-year-old bank came from the startup ecosystem. The bank provided banking to nearly half of all US VC-backed startups, but imploded last week as customers tried to withdraw some US$40 billion in funds – about a quarter of the capital in the bank – before the state Regulators stepped in on Friday. Control. The FDIC is now the receiver of Silicon Valley Bank.

Startup founders will be unable to pay staff amid fears of a dinosaur-level extinction over the weekend amid pleas for the US government to intervene.

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ASX-listed tech companies exposed to the SVB collapse fell in early trading on Monday morning ahead of the US Fed announcement.

The Federal Reserve’s intervention also included crypto-focused Signature Bank, which New York state regulators took control of on Sunday, citing concerns about its viability.

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Silvergate, a 25-year-old Californian bank that has also been crypto-focused in recent years, collapsed last week, but it was not part of this bailout.

“Today, we are taking decisive action to protect the American economy by strengthening public confidence in our banking system,” Yellen, Powell and Gruenberg said in their joined statement.

“This step will ensure that the US banking system continues to fulfill its important role of protecting deposits and providing households and businesses with access to the credit that fuels strong and sustainable economic growth.”

Depositors will have access to all their money from Monday, March 13.

“No damages associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” he added.

on my instructions, @seckylen And my National Economic Council director worked with banking regulators to resolve problems at Silicon Valley Bank and Signature Bank.

I’m glad they’ve come to a solution that protects workers, small businesses, taxpayers, and our financial system.

– President Biden (@POTUS) March 13, 2023

At its peak, the SVB had about US$200 million in deposits, but as interest rates rose, those funds began to flow out of the bank, with about $25 billion withdrawn in 2022, and that figure expected to increase by the early weeks of 2023. I crossed Due to increasing concern about the liquidity of the bank.

The rush to withdraw funds turned into a stampede on Thursday after Bloomberg reported that high-profile investor Peter Thiel’s Founders Fund pulled all its cash from SVB, along with several other VC funds Coatue Management, Union Square Ventures and Founder Collective. Also asked the founders to withdraw their money. Cash from SVB.

The bank was forced to sell $21 billion of its fixed income portfolio, recording a loss of $1.8 billion in the process, and then announced plans to raise $2 billion, which failed. Its share price fell by nearly two-thirds.

The Federal Reserve’s deal to protect SVB deposits also extends to New York’s Signature Bank, which was shuttered by regulators on Sunday. Certain unsecured borrowers, including shareholders and bond holders, have not been covered by the announcement and senior management of both the banks have been removed.

“Any loss of the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks,” the joint statement said.

“Today’s action demonstrates our commitment to take necessary steps to ensure that depositors’ savings are protected.”

The Federal Reserve will also make additional funds available to eligible depository institutions to help ensure that banks can meet any demands for withdrawals from depositors.

A number of Australian startups had funding deposited with SVB, and after a worrying weekend, their capital was not safe.

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