Silicon Valley Bank: Biden Says US Banking System Is Safe

After a series of bank failures raised concerns about financial stability, US officials have taken urgent steps to improve the banking system.

The government said it would guarantee all deposits at Silicon Valley Bank and Signature Bank, which were taken over by the authorities.

It wants to prevent the spread of demonetisation that hit SVB last week.

President Joe Biden said Americans “must be confident that our banking system is safe.”

Individuals and traders who have deposited money with SVB will be able to withdraw their money from Monday, he said.

Taxpayers will not bear any loss due to this move, which will be funded by the fee regulator charging banks, he said. He also said that the heads of the banks will be removed.

Mr Biden spoke early on Monday as he raised concerns that the failures and signature of SVB, the country’s 16th largest bank, could trigger a financial crisis.

SVB – which specializes in lending to technology companies – was shut down by regulators who seized its assets on Friday. It was the biggest failure of a US bank since the 2008 financial crisis.

It comes after SVB scrambled to raise cash to offset losses from selling assets hit by high interest rates. Word of the problems led to a race for customers to withdraw funds leading to a cash crunch.

Officials said on Sunday that it had taken over Signature Bank of New York, considered the most vulnerable institution by a similar bank run after SVB.

“Every American should be confident that their savings will be there when they need them,” President Biden said. “I promise too. We will not stop here. We will do what is necessary.”

As part of their moves to restore confidence, regulators also unveiled a new way to give banks access to emergency funds.

The Federal Reserve said it would provide aid through a new bank term financing program that would make it easier for banks to borrow in a crisis.

Paul Ashworth, chief North America economist at Capital Economics, said U.S. officials “have acted aggressively to prevent contagion.”

“Rationally, this should be enough to prevent the spread and elimination of any contagion that could happen in the blink of an eye in the digital age. But contagion is always about irrational fear, so we’ll stress that. There’s no guarantee it will work,” he added.

I’ve been talking to people stuck with SVB over the weekend.

One founder told me he’s constantly updating his online banking page and hopes it works.

Another said he hoped the government would take action, but admitted the company may have lost about 40% of its money overnight.

The statement was welcomed by the depositors. But the move also has those raising eyebrows.

SVB mainly banked on start-ups and venture capitalists in Silicon Valley – the tech elite. Those Silicon Valley elites are more than libertarian in their politics: the boilerplate view is that government is slow and big.

Critics argue that it’s ironic that the government is stepping in to save the day. Some might wonder if the dominant technological brethren were prioritized: capitalism when things were going well, socialism when they weren’t.

That’s why the report is careful to say that taxpayers won’t pay for it. Mr Biden must now defend the measure – and reassure members of his own party that guaranteeing depositors is the only way forward.

SVB began as a California bank in 1983 and has expanded rapidly over the past decade. An important lender to early-stage businesses in the technology sector, it was the banking partner for nearly half of the US venture-backed technology and healthcare companies that listed on stock exchanges last year.

But it has come under pressure as high interest rates have made it difficult for startups to raise money through private fundraising or equity sales.

Elsewhere, HSBC said it would buy SVB’s UK arm for £1, while authorities in Canada took temporary control of the assets of SVB’s branch in the country. The top banking regulator said it wanted permanent control.

The deal with HSBC was scuttled overnight before trading resumed on Monday, which the Treasury said involved no taxpayer money.

Customers and merchants who could not withdraw their money can now access it normally.

Echoes of the collapse are widespread in Silicon Valley, as companies grapple with questions about what it means for their finances.

Etsy and Roku are among the big companies that have banked money.

“At Etsy, supporting our sellers is our highest priority, and we understand how important it is for these small businesses to get their funding when they need it,” an Etsy spokesperson said Sunday.

“There has been a delay in payments to some vendors related to the unexpected collapse of Silicon Valley Bank. Our teams are working around the clock to implement a resolution.

“We expect to start paying sellers through our other payment partners within the next few business days and will begin processing these payments tomorrow, March 13.”