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Lanang Nguyen, Pete Schroeder, Sarah N. Lynch
NEW YORK (Reuters) – U.S. regulators said on Monday they were preparing “significant action” to bolster deposits at Silicon Valley Bank (SVB) and stem the financial fallout from a sudden collapse, officials said. A source familiar with the matter told Reuters.
Biden administration officials worked throughout the weekend to assess the impact of Friday’s failure at startup-focused lender SVB Financial Group, with a particular eye on the venture capital sector and local banks.
Details of the planned announcement on Sunday were not immediately available. A source said the Federal Reserve has taken action to keep banks operating during his COVID-19 pandemic and could take similar actions now.
“This will be a material action, not just words,” said one source.
Earlier, U.S. Treasury Secretary Janet Yellen said the SVB was working with banking regulators to respond after becoming the largest failed bank since the 2008 financial crisis.
Amid fears of wider impacts in the U.S. regional banking sector and beyond, Yellen said she was working to protect depositors but ruled out relief.
“I want to make sure that problems that exist in one bank don’t spread to other healthy banks,” Yellen told CBS News’ Sunday Morning Show.
“During the financial crisis, there were bailed-out investors and owners of large organized banks…and the reforms that have been implemented mean we are not going to do it again,” Yellen said. added.
In March 2020, as the outbreak of the coronavirus pandemic and lockdowns sparked a financial panic, the U.S. Federal Reserve (Fed) decided to cut borrowing costs and extend the term of direct loans to boost credit flows. announced a series of measures to maintain
By the end of the month, use of the so-called discount window feature had surged to over $50 billion in credit provided by the Fed.
By the middle of last week, before Silicon Valley collapsed, there were no signs of recovery, with outstanding balances of $4 billion to $5 billion each week of the year, according to Fed data.
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The Federal Deposit Insurance Corporation (FDIC) protects deposits up to $250,000, but there are concerns about deposits above that, one source said, adding that many small businesses risk being unable to pay their employees. added that it is exposed to
U.S. officials are also keeping a close eye on the broader sector as withdrawals from other regional banks increase.
More than 3,500 CEOs and founders, representing nearly 220,000 workers, signed a petition initiated by Y Combinator to directly appeal to Yellen and others to boost depositors, creating more than 100,000 jobs warned that it could be at risk.
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The Santa Clara, Calif.-based lender, with $209 billion in assets, is the 16th largest bank in the United States and had a relatively short list of potential buyers to close the deal.
The FDIC, which has been designated as a trustee, has been looking for another bank willing to merge with SVB, people familiar with the matter said Friday.
Some industry executives said such deals would be large for any bank and would likely require regulators to provide special guarantees or take other action. I’m here.
US House Speaker Kevin McCarthy told Fox News’ Sunday Morning Futures program that the Joe Biden administration and the US Federal Reserve are gearing up for an announcement before markets open on Monday. said.
The Fed and FDIC did not immediately respond to requests for comment.
COMMUNITY BANKS Some analysts and high-profile investors warned that it could put pressure on other banks if the deal is not resolved by Monday.
The Fed and FDIC were considering creating a fund that would allow regulators to boost deposits at troubled banks, Bloomberg reported.
The regulator discussed the new special measures in conversations with bank executives and hoped such measures would reassure depositors and help quell panic, the report said.
“The good news is that bankruptcies like SVB are unlikely to hit big banks,” said risk and financial advisor Kroll in a research note.
But smaller community banks can face problems, and “if SVB’s uninsured depositors don’t fully recover and have to reduce their deposits, the risks are much higher,” Kroll said. added.
Billionaire hedge fund manager Bill Ackman said in a tweet on Saturday that uninsured deposits could be withdrawn from other institutions if all depositors are not protected.
“These withdrawals drain liquidity from communities, regions, and other banks and begin the destruction of these critical institutions,” warned Ackman, who said there were no direct revelations.
The S&P 500 Regional Bank Index fell 4.3% on Friday, ending the weekend down 18%, its worst week since 2009. signature bank (NASDAQ:SBNY) is down about 23% but is based in San Francisco. First Republic Bank (NYSE:FRC) is down 15%. Western Alliance (NYSE:WAL) Bancorp is down 21% and PacWest Bancorp is down 38%. Charles Schwab (NYSE:SCHW) is down more than 11%.
Signature Bank, First Republic Bank, PakWest Bank and Charles Schwab did not respond to requests for comment. Western Alliance Bank declined to comment.
Some banks may raise capital pre-emptively to bolster their balance sheets or attempt unique deals, industry executives said. When IndyMac and Washington Mutual collapsed in his 2008, the FDIC found other companies taking over assets and keeping deposits intact. If no buyer is found for the SVB, uninsured depositors may be left with some of the funds the FDIC can raise by selling the bank’s assets.
global domino
In the UK, where SVB has a local entity, Finance Minister Jeremy Hunt said on Sunday that he would work with Prime Minister Rishi Sunak and the Bank of England to “avoid or minimize damage” from the disruption.
Hunt told Sky News that “we will soon move forward with plans to ensure that our employees are able to meet their cash flow requirements and pay their staff.”
More than 250 UK tech executives signed a letter on Saturday calling for government intervention, according to a copy seen by Reuters.
Advisory firm Rothschild & Co is considering options for Silicon Valley Bank UK Limited, two people familiar with the talks told Reuters on Saturday. The BoE has said it is seeking a court order to put the UK division into bankruptcy proceedings.
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