Silicon Valley Bank, which saw a sudden collapse last week, established itself as the “go-to” spot for venture capitalists looking for financial partners more open to unconventional business proposals. While US authorities came to a quick rescue after SVB’s collapse, regulators are keeping a close watch on other banks.
FILE: Customers stand outside the Silicon Valley Bank headquarters in Santa Clara (Credits: Reuters)
By India Today Business Desk: The sudden collapse of Silicon Valley Bank (SVB) was the second-biggest bank failure in US history. As administration officials and regulators worked through the weekend, US President Joe Biden expressed concerns about small businesses and their employees who relied on accounts that were now in jeopardy, a White House official was quoted as saying by the Associated Press.
There were also fears if SVB depositors lost money, others would lose faith in the banking system and rush to withdraw money on Monday, causing a cascading crisis. But SVB wouldn’t be the only bank to collapse.
By Sunday evening, federal officials announced that New York-based Signature Bank, a major lender to New York landlords, had also failed and was being seized. The government’s plan to cover deposits over $250,000 ended up applying to Signature’s customers as well.
THE COLLAPSE OF SILICON VALLEY BANK – DEVELOPMENTS SO FAR
US AUTHORITIES COME TO RESCUE OTHER BANKS
Thorough investigations to look into the sudden collapse of Silicon Valley Bank began by California Democratic Rep. Maxine Waters, the former chair of the House Financial Services Committee. She even doubted that another bank would step up as a savior and buy the defunct institution. A frenetic weekend of nonstop briefings with regulators, lawmakers, administration officials and President Joe Biden followed. At the core of the problem was tens of billions of dollars — including money companies needed to meet payrolls — sitting in Silicon Valley Bank accounts that were not protected by federal deposit insurance that only goes up to $250,000. The government’s plan to cover deposits over $250,000 ended up applying to customers of New York-based Signature Bank, a major lender to New York landlords. Later, in a statement, Biden said, “The American people and American businesses can have confidence that their bank deposits will be there when they need them.”
US WATCHING DEVELOPMENTS AT OTHER BANKS
The White House said it was carefully monitoring developments at First Republic and other smaller banks. The US banking system was in a ‘vastly better position right now’, an official was quoted by Reuters as saying. He said the White House was in very close touch with Treasury and the Federal Deposit Insurance Corporation about potential problems at other banks that were about the same size as SVB. The White House, which has railed against excessive concentration in other US sectors, was also keeping a close watch to see if there are outflows of money to larger banks, and remains committed to ensuring robust competition in the banking sector, the official said.
US PROSECUTORS PROBING SVB COLLAPSE
The US Justice Department is probing the sudden demise of the bank, a source told Reuters. The Securities and Exchange Commission (SEC) has launched a parallel investigation, according to the Wall Street Journal, which first reported the probes. The investigation is in the early stages and may not result in allegations of wrongdoing or charges being filed, the source said. Officials are also examining stock sales by officers of SVB Financial Group, which owned the bank, the WSJ reported, citing people familiar with the matter. SEC Chair Gary Gensler on Sunday said in a statement the agency is particularly focused on monitoring for market stability and identifying and prosecuting any form of misconduct that might threaten investors during periods of volatility. Meanwhile, on Tuesday, rating agency Moody’s cut its outlook on the US banking system to “negative” from “stable.” SVB Financial Group and two top executives were sued this week by shareholders, who accused them of concealing how rising interest rates would leave its Silicon Valley Bank unit susceptible to a bank run.
NEW SVB CEO URGES TOP CLIENTS TO MOVE DEPOSITS BACK
Meanwhile, Silicon Valley Bank’s new Chief Executive Tim Mayopoulos on Tuesday urged the failed bank’s top venture capital clients to move their deposits to its newly created bridge entity. Mayopoulos told clients deposits at the bank were now among the safest of any US banks or institutions, attendees at the meeting told Reuters. The new bank will honor existing loan facilities and lines of credit for its customers, easing widespread concern among many startups which have loan agreements with the bank, they added. A message posted on the bank’s website on Tuesday read the bank was “open for business.” Mayopoulos also laid out potential outcomes for the bank, including getting recapitalised as a new independent chartered bank, finding a buyer, or winding down, which he said was “not very likely,” the clients said.
US FED TO CONSIDER TOUGHER RULES FOR MIDSIZE BANKS
The failures of Silicon Valley Bank and Signature Bank has led the US Federal Reserve to reconsider a number of its own rules related to midsize banks, the Wall Street Journal reported on Tuesday. The Fed may potentially extend restrictions that currently only apply to the biggest Wall Street firms, the report said, adding firms with between $100 billion to $250 billion in assets could be targeted.