In a joint statement Sunday, Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg announced “decisive actions to protect the U.S. economy by strengthening public confidence in our banking system.”
The moves followed the collapse of California-based Silicon Valley Bank, which was shut down by regulators Friday—the second-largest bank failure in U.S. history. A key action made to reassure the public was ensuring that “all depositors” at SVB would be “fully protected” above and beyond the $250,000 insured for each account by the FDIC.
SVB, which was founded in 1983, grew to become “the go-to lender for tech startups that appeared too risky in the eyes of larger, more traditional banks,” according to NPR, eventually doing business “with nearly half of all U.S. tech startups backed by venture capitalists.”
With many tech startups holding millions in SVB accounts, the threat of all but $250K disappearing inspired panic and long lines at SVB locations around the country—and led to fears of other bank runs causing a domino effect in the financial system.
SXSW conference attendees rattled by SVB news
Late last week, many attendees at the SXSW conference in Austin were rattled by the news of SVB’s collapse.
“I think every founder, every VC, every tech reporter … our phones are blowing up right now,” Craig Cummings, general partner at Austin-based Moonshots Capital, told Austin Inno. “And we’re just trying to sort through it all. But it’s an hour-by-hour thing right now.”
Sunday’s announcement that all SVB depositors would be “fully protected” may have slowed down some pulses in Austin, North Texas, and beyond. But concerns continue after regulators seized yet another bank Sunday.
Concerns continue after Sunday’s failure of Signature Bank
New York-based Signature Bank was seized by regulators Sunday after anxious customers had withdrawn $10 billion on Friday. It’s the third-biggest bank failure in U.S. history, according to CNBC, which noted that Signature Bank had “created a 24/7 payments network for crypto clients and had $16.5 billion in deposits from digital-asset-related customers.”
In their joint statement, Yellen, Powell, and Gruenberg reassured Signature Bank depositors as well.
“All depositors of this institution will be made whole,” the joint statement read. “As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.”
“Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed,” the officials added. “Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
Fed officials cite reforms made after financial crisis
Concerns have also been raised about San Francisco-based First Republic Bank, which saw its shares drop by around 60% in premarket trading Monday despite the bank’s announcing steps to strengthen its balance sheet, according to CNN.
In a bid to bolster public confidence in the banking system, the Federal Reserve Board on Sunday announced it will make available “additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.”
“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,” the joint statement said. “Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”
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