US marshalling ‘material action’ to stem SVB fallout -sources

Andrea Shalal and Sarah N. Lynch.

NEW YORK (Reuters) – U.S. authorities were preparing “material action” According to sources familiar with this matter, the bank will try to protect deposits at Silicon Valley Bank (SVB), as well as stem the financial fallout of the sudden collapse.

Biden administration officials worked over the weekend to evaluate the impact of Friday’s failure at SVB Financial Group, with a special eye on regional banks and the venture capital sector, sources claimed.

Although details of an announcement were not available immediately, one source said that the Federal Reserve could make similar actions to those it took to maintain banks operational during the COVID-19 pandemic.

“This will be a material action, not just words,” One.

According to the Washington Post, three sources with knowledge of the matter said that the U.S. authorities are contemplating safeguarding all SVB uninsured deposits.

According to the report, officials from the Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation had discussed the idea over the weekend.

CNBC reported that both the Fed and FDIC were discussing two options to handle the fallout of the closing SVB, if there is no buyer.

SVB’s collapse also caused ripples around the globe, with the British government trying to minimize any fallout from the bank’s UK subsidiary as well as worries in countries such Israel and India where tech companies have relied upon the bank.

Janet Yellen, U.S. Treasury Secretary, said earlier that she was working closely with regulators to help SVB after it became the biggest bank failure since 2008’s financial crisis.

As fears grew of a wider fallout in the U.S. banking sector, Yellen stated that she was working to protect depositors but ruled out a bailout.

“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen told CBS’s “Face the Nation.”

“During the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place means we are not going to do that again,” Yellen added.

When financial panic was triggered by the coronavirus epidemic and lockdowns in March 2020, the Federal Reserve announced a number of measures to keep credit flowing. These included lowering borrowing costs as well as extending terms for its direct loans.

The Fed’s discount window facility had risen to $50 billion by the end of that month.

Bloomberg News reported that Fed officials are considering relaxing the conditions banks can use to gain access to the window. This would increase banks’ ability to respond to withdrawal requests by depositors.

Despite no signs of usage picking-up during the middle week before SVB collapsed, Fed data showed weekly outstanding balances between $4 billion and $5 billion since the beginning of the year.

(Graphic: The Discount Window – https://www.conservativenewsdaily.net/breaking-news/wp-content/uploads/2023/03/localimages/chart.png640e5f847e4b7.png)

FINDING A BUYER

Federal Deposit Insurance Corporation (FDIC), protects deposits up to $250,000 but there are concerns about SVB deposits higher than that, according to one source. This is because many small businesses could be unable to pay their staff.

U.S. officials also keep an eye on increased withdrawals from other banks in the region.

(Graphic: Total deposits in the U.S. banking system – https://www.conservativenewsdaily.net/breaking-news/wp-content/uploads/2023/03/localimages/chart.png640e5f873ae5a.png)

People familiar with the matter stated that SVB was being rehabilitated by FDIC and was looking for a bank to merge with it.

Santa Clara’s SVB, a California bank with assets of $209 billion, was the 16th-largest U.S. bank. Industry executives claimed that such an agreement would likely require regulators giving special guarantees or making other allowances.

U.S. House of Representatives Speaker Kevin McCarthy said that President Joe Biden’s Administration and the Federal Reserve were working together to make an announcement before Monday’s markets open.

FDIC and the Fed did not respond to our requests for comment.

COMMUNITY BANCKS Some prominent investors and analysts warned that other banks could be under threat if there is no resolution by Monday.

Bloomberg reported that the FDIC began an auction process late Saturday night, citing sources familiar with the matter. Final bids are due by Sunday afternoon.

According to the report, the FDIC was in hurry to sell SVB assets as well as make some of its uninsured deposits accessible as soon as Monday.

(Graphic: Trillions of dollars in U.S. bank deposits are uninsured – https://www.conservativenewsdaily.net/breaking-news/wp-content/uploads/2023/03/localimages/chart.png640e5f898d8bb.png)

Shockwaves caused by SVB’s collapse can be seen in the S&P 500 Regional Banks Index, which fell 4.3% Friday and ended the week at 18%. This is its worst week since 2009. Signature Bank suffered a 23% drop, while San Francisco-based First Republic Bank experienced a 15% decline. Western Alliance Bancorp fell 21%, while PacWest Bancorp lost 38%. Charles Schwab lost more than 11%

Signature Bank, First Republic Bank PacWest Bank, Charles Schwab and PacWest Bank did not immediately respond when we asked them for comment. Western Alliance Bank declined comment.

According to industry experts, some banks may look to raise capital in advance to improve their balance sheets and strike deals of their own. IndyMac, Washington Mutual and other banks collapsed in 2008 and the FDIC found another firm to buy the assets and preserve deposits. If there is no buyer for SVB, the FDIC will likely leave uninsured depositors with a percentage of any funds it can raise by selling the bank’s assets.

(Graphic: Uninsured deposits as a share of all U.S. deposits – https://www.conservativenewsdaily.net/breaking-news/wp-content/uploads/2023/03/localimages/chart.png640e5f8bd37f4.png)

GLOBAL DOMINOES

SVB has a subsidiary in Britain. Jeremy Hunt, the finance minister, said that he was working closely with Rishi Sunak, Prime Minister, and Bank of England. “avoid or minimise damage” Chaos is the result.

“We will bring forward very soon plans to make sure people are able to meet their cash flow requirements to pay their staff,” Hunt said Sky News

Venture capital has backed around 2.5 billion pounds of British start-ups, mainly in deposits. “locked” According to a survey conducted by an industry body and seen by Reuters, the UK subsidiary was the most popular.

More than 250 British executives from tech companies signed a petition calling for the intervention of the state, a copy of which was seen by Reuters.

Two people familiar with the discussions told Reuters that Rothschild & Co, an advisory firm, is looking into options for Silicon Valley Bank UK Limited. The BoE stated that it is seeking a court injunction to put the UK arm in an insolvency proceeding.

The Tel Aviv Stock Exchange saw shares drop more than 4 percent on Sunday in Israel. This was due to financial institutions. The country’s biggest growth engine is its tech sector. Its relationship with Silicon Valley is strong. SVB had many accounts for Israeli startups, though the exact amounts aren’t known.

The Indian state minister of technology stated on Sunday that he would meet with start-ups in this week’s meeting to evaluate the impact of the lender’s collapse.

(Reporting by Lananh Nguyen. Paritosh Bangsal. Tatiana Bautzer. Nupur Anand. Ira Iosebashvili. Dan Burns in New York. And Pete Schroeder. Jason Lange. Sarah N. Lynch. Rami Ayyub. and Andrea Shalal. In Washington. Kanjyik and Akanksha Khushi. And Andrew MacAskill. Editing by Jamie Freed.