President Joe Biden is dismissing growing concerns sparked by the failure of two banks closely tied to technology and life science companies.
The federal government took control of Silicon Valley Banks, a top bank in the technology sector, on March 10 after its share price rapidly plummeted. New York regulators announced on March 12 that they have taken control of Signature Bank, known for real estate lending and serving clients tied to the cryptocurrency industry.
“The bottom line is this: Americans can rest assured that our banking system is safe. Your deposits are safe,” Biden said during a press conference at the White House on March 13. “Let me also assure you, we will not stop at this. We’ll do whatever is needed.”
“We must get the full accounting of what happened,” he added. “Americans can have confidence that the banking system is safe.”
SVB’s failure is the second largest in American history. Before a wave of depositors withdrew their funding last week, an estimated 93% of the bank’s $161 billion in deposits were not insured by the FDIC.
According to The Washington Examiner:
SVB’s meltdown was partly caused by a chasm between its assets and what they were worth in the market. Eventually, SVB sold some of those assets, spooking investors and triggering a run on the bank. But SVB isn’t alone, as banks across the United States were sitting on $620 billion in unrealized potential losses at the end of last year… The reason for this predicament is that banks compiled a plethora of bonds and treasuries during times when interest rates were hovering near zero. But now, the Federal Reserve has begun jacking up rates in an effort to combat inflation, which has caused many of those assets to plunge in value.
All of SVB’s remaining deposits were transferred to the Deposit Insurance National Bank of Santa Clara which was created by the Federal Deposit Insurance Corporation. While the FDIC insures deposits up to $250,000, the U.S. Department of Treasury has said it will ensure all SVB depositors will have access to their funds by March 13.
“Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” said the Department of Treasury in a joint statement with the Federal Reserve and the FDIC on March 12.
The agency also said the banking system at large “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,” per The Hill.
The federal government is now also taking control of Signature Bank and guaranteeing all of its deposits. As of Dec. 31, Signature Bank had about $110 billion in assets and $88.6 billion in total deposits. The bank operated 40 branches across New York, California, Connecticut, North Carolina, and Nevada. The FDIC established the Signature Bridge Bank, N.A. “to maximize the value of the institution for a future sale and to maintain banking services in the communities formerly served by Signature Bank.”
“The transfer of all the deposits was completed under the systemic risk exception approved earlier today. All depositors of the institution will be made whole. No losses will be borne by the taxpayers,” said the FDIC in a statement. “Shareholders and certain unsecured debt holders will not be protected. … Any losses to the Deposit Insurance Fund (DIF) to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
All of Signature Bank’s senior management has been removed.
“This is an unusual circumstance,” New York Governor Kathy Hochul said at a press conference in Manhattan, per ABC 7 NY. “But the main message I want to deliver is that New Yorkers should have confidence that their money is secure, and wherever they have chosen to bank, that that is protected.”
Silvergate Bank, an entirely crypto-focused institution, failed on March 8 but was not subject to FDIC intervention. The California-based bank has said it will repay all deposits in full.
The Federal Reserve and JP Morgan Chase have offered additional liquidity to First Republic Bank, which saw a 64% drop in shares on March 13 – continuing a dramatic downward trend that began last week.