SVB solution ensures taxpayer dollars are not put at risk: President Biden
Biden said that at his direction the Treasury Secretary and National Economic Council Director worked diligently with the banking regulators to address problems at SVB
US President Joe Biden has assured the American people and businesses that a resolution of the collapse of the Silicon Valley Bank will not put taxpayer's money at risk, and they can have confidence that their bank deposits would be there when they need it.
In a late-night statement on Sunday, Biden also announced that on Monday morning he will deliver remarks on how the US will maintain a resilient banking system to protect the economic recovery.
The California-based Silicon Valley Bank (SVB), the 16th largest bank in the United States, was closed on Friday by the California Department of Financial Protection and Innovation which later appointed the Federal Deposit Insurance Corporation (FDIC) as its receiver.
Industry watchers expect a quick takeover of the bank as it has enough assets that can be liquidated to return money to the clients.
Biden said that at his direction the Treasury Secretary and National Economic Council Director worked diligently with the banking regulators to address problems at SVB and Signature Bank.
"I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe. The solution also ensures that taxpayer dollars are not put at risk. The American people and American businesses can have confidence that their bank deposits will be there when they need them," Biden said.
"I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again," he added.
Hours earlier, Treasury Secretary Janet Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors.
"Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of SVB will be borne by the taxpayer," said a joint statement issued by the Department of the Treasury, Federal Reserve, and FDIC.
"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 SVB, no losses will be borne by the taxpayer," it said.
According to the interagency federal statement, shareholders and certain unsecured debt holders will not be protected.
"Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law," it said.
The Federal Reserve Board on Sunday announced it would make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.
This step will ensure that the US 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, the statement further said.
Senator Mark Warner, a member of the Senate Banking Committee, said after an unprecedented and reckless run on Silicon Valley Bank, there were very real risks of instability spreading to other institutions and undermining our national security and technology innovation ecosystem.
"The Federal Reserve, the FDIC, and the Treasury Department have together acted as Congress intended when we wrote Dodd-Frank by acting swiftly and responsibly to protect depositors and make sure that our financial system remains stable, while at the same time making clear that bank shareholders and bondholders shouldn't expect any kind of bailout by the taxpayers. Their quick action will help companies make payroll and preserve jobs all across the country," he said.
California Governor Gavin Newsom said that the Biden Administration has acted swiftly and decisively to protect the American economy and strengthen public confidence in our banking system.
"Their actions this weekend have calmed nerves, and had profoundly positive impacts on California on our small businesses that can now make payroll, workers who will get their paychecks, on affordable housing projects that can continue construction, and on non-profits that can keep their doors open tomorrow," he said.
"California is a pillar of the American economy, and federal leaders did the right thing, ensuring our innovation economy can continue to grow and move forward," Newsom said.
Silicon Valley Bank was deeply entrenched in the tech startup scene and the default bank for many high-flying startups; its abrupt fall marks one of the largest bank failures since the 2008 global financial crisis.
The bank failed after clients -- many of them venture capital firms and VC-backed companies that the bank had cultivated over time -- began pulling out their deposits, creating a run on the bank (among the biggest US bank runs in more than a decade).
Bank runs occur when customers or investors gripped by panic start withdrawing their money, causing the bank to be incapable of paying its obligations as they come due.
Silicon Valley Bank's abrupt collapse last week has left Silicon Valley entrepreneurs unnerved and jittery. Federal Deposit Insurance Corporation on Friday seized the assets of Silicon Valley Bank -- the action reportedly in the middle of the business day highlighted the severity of the situation.