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A weekend of nail biting, frantic tweeting, and high-stakes backroom meetings concluded with one of the most soothing sentences ever uttered by financial regulators: “Depositors will have access to all of their money starting Monday, March 13.”
Yesterday evening, the US government told anxious depositors of collapsed Silicon Valley Bank that they’d have access to all of the money they stashed with the lender, even if the amount exceeded the $250,000 limit insured by the FDIC. In addition to backstopping depositors, the Fed is offering additional funding to some banks to limit the potential contagion from spreading across the banking sector. None of this will fall on the taxpayer, regulators said.
The Fed’s aggressive actions, the scale of which we haven’t seen since early Covid, show how the implosion of Silicon Valley Bank on Friday could have quickly turned into a full-blown banking crisis when markets opened this morning.
- Banking is a confidence game, and if people and businesses felt their uninsured deposits were at risk, they could start pulling money from other banks in a catastrophic bank run.
- The government had a hard deadline of 9:30am ET this morning to restore confidence in the banking system, and it beat it. Heck, it even got it done before the Oscars.
However, in their announcement, regulators also noted the closure of a second bank, New York-based Signature Bank, over “systemic risk.” All of Signature’s depositors will be made whole, they said.
What it all means
The government’s backstopping of SVB’s depositors means the US startup ecosystem will avoid an “extinction-level event,” as some startup leaders had warned. More than half of US tech and life sciences startups banked with SVB, and many were concerned they wouldn’t have enough money to pay employees this week or keep their companies running.
What will happen to SVB? Its assets will be sold to the highest bidder. The FDIC, which now controls SVB, began an auction for the bank’s assets Saturday night. The cleanest outcome would be a single buyer, but there are only a few banks big enough to realistically scoop it all up, such as JPMorgan, Citigroup, or Bank of America. As of last night, no deal had been reached.
Bottom line: While it appears that we won’t be reliving 2008, expect SVB to remain in the headlines for days and weeks to come. Politically charged debates over the Fed’s decision to backstop depositors, banking regulation, and how to prevent another SVB-like collapse have already begun and will only grow louder.