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After a dramatic few days in the banking industry, regulators stepped forward Sunday to restore faith in the banking system and said that depositors of now-defunct Silicon Valley Bank would be made whole as will depositors of Signature Bank, which also was closed.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. 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,” read a joint statement by the Treasury Department, Federal Reserve, and Federal Deposit Insurance Corporation.
The move comes two days after the sudden collapse of Silicon Valley Bank sparked fears that other banks could face a similar fate, putting depositors at risk.
The regulators said Sunday that all depositors at Silicon Valley Bank would have access to their deposits Monday.
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” they wrote.
The regulators also announced that New York-based Signature Bank was closed by its state chartering authority and said that depositors of the institution would be made whole.
“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. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe,” the regulators wrote.
In a separate announcement, the Fed said that it would make additional funding available to eligible banks so that they can meet the needs of their depositors.
The Fed said Sunday that it was launching the Bank Term Funding Program (BTFP) which would allow lenders to take loans of up to one year to address liquidity pressures. U.S. Treasuries, agency debt, and mortgage-backed securities are eligible to be used as collateral for the loans and the assets will be valued at par, which would further enhance the borrowing capacity of the banks.
This facility will also allow banks to get financing without having to sell their assets at a loss. The program will be large enough to cover uninsured deposits in the banking system, according to Fed officials familiar with the matter.
Separately, the Treasury Department will make up to $25 billion available as a backstop to the BTFP under the Exchange Stabilization Fund even though the Fed does not anticipate that those funds will need to be tapped.
Additionally, the Fed relaxed terms for banks choosing to access the Fed’s discount window. Normally, banks access the short term funding by pledging their collateral at a slight haircut but in light of recent events, banks will be able to get loans with their collateral valued at market value without the haircut.
“The Board is closely monitoring conditions across the financial system and is prepared to use its full range of tools to support households and businesses, and will take additional steps as appropriate,” it said
While the actions by regulators eased many of the concerns raised over the last few days, Wall Street still expects some jitters.
“Monday will surely be a stressful day for many in the regional banking sector,
but today’s action dramatically reduces the risk of further contagion,” Thomas Simons, economist at Jefferies, wrote Sunday
Write to Carleton English at [email protected]
