With hours to go before the trading day begins in Asia, major US regulators have been thinking about guaranteeing all deposits at Silicon Valley Bank to avoid greater panic in the global financial sector. Washington Post reported late Sunday.
Among the Federal Reserve, US Treasury, FDIC and the White House, an outright buyer for the bankrupt bank is the best case scenario. Most bank failures are resolved that way and allow savers not to lose money. After. The FDIC reportedly launched an auction for SVB assets yesterday, with the final bids due at 2 p.m. EST.
That means they have less than six hours before trading markets open in Shanghai and Tokyo, where the global impact of the bank’s failure late last week will become apparent.
One of the options on the table is to provide a “backstop” for all uninsured deposits at Silicon Valley Bank, the After reported, citing an anonymous source as saying federal officials are considering a “legal and politically responsible way to protect all uninsured deposits.”
Such a move wouldn’t technically be a bailout — something Treasury Secretary Janet Yellen ruled out this weekend — because it would tap into an insurance fund paid for by US banks rather than falling back on taxpayers’ money.
Silicon Valley Bank was among the 20 largest banks in the US when it went bankrupt on Friday after a bank was run by customers. California state regulators placed the bank under the control of the FDIC, which in turn created a new entity — the Deposit Insurance National Bank of Santa Clara — to manage its remaining assets.
The FDIC guarantees deposits with member banks of up to $250,000, but many Silicon Valley Bank clients held significantly larger balances. Targeting tech companies and startups, the bank described itself as “the financial services provider for the innovation economy,” with many companies donating the proceeds of entire fundraising rounds.
According to Silicon Valley Bank’s most recent filings, more than 85% of deposits were uninsured.
So was Silicon Valley Bank’s Twitter account, @SVB_Financial deleted on Sunday.
To continue with the “backstop,” Silicon Valley Bank’s failure would need to be classified as part of “systemic risk” and approved by multiple regulatory bodies. This is a high bar, as many financial industry analysts remained confident in the stability of the US financial sector despite the collapse of Silicon Valley Bank.
“This is not a systemic event — this is a medium-sized bank that was mismanaged,” said University of Chicago business professor Anil Kashyap. After. “It might be a little messy, but that’s different than when someone at the core of the financial system stops making payments to someone else at the core of the system and then the core implodes.”
Others, meanwhile, ramped up criticism of federal regulators, claiming that the collapse of Silicon Valley Bank exposed flaws in their practices.
The After report is credited to three knowledgeable people, who spoke on the condition of anonymity to describe private deliberations. None of the agencies named have commented on the record.
