After Silicon Valley Bank, US regulators have shut down a second bank, Signature Bank, the US Treasury announced on Sunday. The Federal Reserve will lend to banks as needed to honor customer withdrawals. The US authorities will also allow customers of the other bankrupt Silicon Valley Bank (SVB) to withdraw all of their deposits. This extraordinary decision was taken by US Treasury Secretary Janet Yellen to reassure individuals and businesses.
The measure was announced jointly by the Treasury with the Federal Reserve (Fed) and the Deposit Guarantee Agency (FDIC), after consultation with US President Joe Biden, according to a statement.
Deposits at the SVB amount to around 170 billion dollars, according to a document published by the establishment on Wednesday, but colossal withdrawals have taken place since. Some $42 billion in withdrawal orders were placed on Thursday alone, but not all of them could be honored.
The bank sold at auction
The American authorities have also put the establishment up for auction, the American press had revealed earlier. The objective was to find a buyer before the opening of the Asian markets on Monday.
An emanation of the US government, the FDIC took control of Silicon Valley Bank on Friday, on the verge of implosion under the effect of massive withdrawals from its customers. The race against time initiated by the American authorities recalls the weekend of September 13 and 14, 2008.
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They had then failed to find a buyer for the Lehman Brothers bank, pushing it to file for bankruptcy on Monday, with dramatic consequences for the financial sector and the entire economy.
Many companies among customers
Signature Bank, like SVB, has a large proportion of corporate clients in their portfolio, whose deposits often exceed the maximum FDIC insured amount of $250,000 per depositor, which could cause them to withdraw their funds. Some 96% of deposits housed at SVB are not covered, according to data published by the institution.
In addition to the stability of the banking system, many are concerned about the repercussions of the SVB bankruptcy on the technology sector, American but also beyond. SVB boasted that its clients were “nearly half” of technology and life sciences companies financed by American investors.
“Many of the depositors are small businesses that need to be able to access their funds to pay their bills and they employ tens of thousands of people” in the United States, noted Janet Yellen. “It is a problem and we are working with regulators to find a solution to it,” she continued. Janet Yellen ruled out a bailout of SVB on Sunday via an injection of public money.