Federal regulators took various actions over the weekend to protect depositors and limit the financial impact of the failure of Silicon Valley Bank.
The Santa Clara, Calif.-based bank, the 16th largest bank in the United States with $209 billion in assets, went under last Friday after a run on deposits and was shut down by the Federal Deposit Insurance Corp. (FDIC). The FDIC took control of the deposits as receiver and to protect them, created the Deposit Insurance National Bank of Santa Clara (DINB). As receiver, the FDIC immediately transferred to the DINB all insured deposits of Silicon Valley Bank.
All insured depositors will have full access to their insured deposits no later than March 13. Further, the FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.
Silicon Valley Bank had 17 branches in California and Massachusetts. The main office and all branches will reopen on March 13 as DINB, which will maintain Silicon Valley Bank’s normal business hours. Banking activities resumed on Monday, including online banking and other services, and Silicon Valley Bank’s official checks will continue to clear, according to the FDIC.
The bank had $209 billion in assets and $175 billion in deposits as of Dec. 31, 2022. When it shut down, it was not clear how many deposits it had, or how much it had in excess of the insurance limits. The amount of uninsured deposits will be determined once the FDIC obtains additional information from the bank and customers.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell, and FDIC Chairman Martin Gruenberg said in a joint statement.
Also, the Federal Reserve Board said on Sunday that it will make available additional funding to eligible depository institutions to help banks meet the needs of all their depositors. In short, the Federal Reserve said it is prepared to address any liquidity pressures that may arise.
The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.
In addition, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. However, the Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.
On Sunday, another bank failed: Signature Bank of New York – the 29th largest U.S. bank with about $110 billion in assets. This bank was a major lender to the cryptocurrency industry, and it was also taken over by the FDIC and the same resolutions will be taken to protect depositors.
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the regulators said in the joint statement.
The regulators added that shareholders and certain unsecured debtholders will not be protected, and senior management has also been removed.
“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe,” Yellen, Powell, and Gruenberg said.
U.S. Sen. Sherrod Brown (D-OH), chair of the Senate Banking Committee, and Rep. Maxine Waters (D-CA), ranking member on the House Financial Services Committee, also released a statement.
“We appreciate the U.S. Department of the Treasury, Federal Reserve, and Federal Deposit Insurance Corporation for coming together to address the Silicon Valley Bank and Signature Bank failures and protect the financial system. Today’s actions will enable workers to receive their paychecks and for small businesses to survive, while providing depository institutions with more liquidity options to weather the storm,” they said.
The last FDIC–insured bank to fail prior to this was the Almena State Bank, Almena, Kan., on October 23, 2020.