Signature, Silicon Valley Bank Depositors Will be Made Whole

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The US Treasury Secretary, Janet Yellen, along with Federal Reserve Board Chair, Jerome Powell and FDIC Chairman, Martin Gruenberg, said Sunday they are taking action to protect the US economy by strengthening public confidence in the banking system.

The failure of Silicon Valley Bank, located in Santa Clara, California, is to be resolved in a way that will fully protect all depositors, who will be granted access to their money starting from March 13, the regulators said in a statement.

“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary 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.”

No taxpayer losses will be associated with the resolution, they said.

A similar “systemic risk exception” has also been announced for Signature Bank, based in New York, reportedly closed by its state chartering authority on Sunday. All institution depositors will be fully compensated, with also no losses being borne by taxpayers.

Though the regulators said, shareholders and some unsecured debtholders will not be protected, and senior management has been removed. Any losses related to uninsured depositors will be recovered by a special assessment on banks, as required by law.

The Federal Reserve Board has also announced that additional funding will be made available to eligible depository institutions to ensure they can meet the needs of all their depositors.

“The US 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,” the regulators said.

On Friday, California regulators ordered the bank to halt its operations and tasked the FDIC with managing its unwinding. While SVB has traditionally been a financial favorite in the tech industry, several crypto companies have become its clients in recent years.

Several reforms were borne out the 2008 financial crisis designed to curb the impact of large systemic risk presented by institutions considered “too big to fail” a the time. That included the likes of the Dodd-Frank Wall Street reform, which helped establish fresh oversight of banks throughout the US.

Following the failure of SVB last week, some crypto companies — notably Circle — made public their exposure to the bank. In Circle’s case, some $3.4 billion was trapped at SVB, which led to a run on the USDC stablecoin over the weekend.

USDC dipped as low as $0.87 at one point, before Circle CEO Jeremy Allaire issued a statement on Saturday that calmed markets.

Source
Signature, Silicon Valley Bank Depositors Will be Made Whole is written by Sebastian Sinclair for blockworks.co

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