Federal regulators said Sunday they were taking steps to ensure that depositors of the failed Silicon Valley Bank will have access to all their money on Monday.
The Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation announced that the bank’s troubles posed a systemic risk to the financial system, allowing regulators to take the unusual step of guaranteeing the deposits.
“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,” the agencies said in a joint statement.
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The regulators also said they were taking over a second failing financial institution, Signature Bank of New York, and similarly designating it as posing a systemic risk and stating the federal agencies would backstop its deposits.
The actions came after a run on Silicon Valley Bank last week threatened to prevent most depositors from having access to savings over $250,000, which typically are not insured by the FDIC, and only hours before trading began in Asia.
The near-financial crisis that U.S. regulators had to intervene to prevent left Asian markets jittery as trading began Monday. Japan’s benchmark Nikkei 225 slipped about 1.2% in morning trading. Australia’s S&P/ASX 200 shed 0.6% to 7,104.30. South Korea’s Kospi, though, was little changed.
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The bank's failure marks the second largest in U.S. history after the 2008 demise of Washington Mutual. It came because tech companies struggled to get financing as venture capital funding dried up and began withdrawing their cash from SVB. To cover the withdrawals, the bank was forced to sell bonds at a loss because of rapidly rising interest rates over the past year.
Separately, the Fed said it will provide financing by offering loans of up to a year to eligible banks and other financial institutions. The move is intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole.
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The Treasury has set aside $25 billion to offset any losses incurred under the Fed’s emergency lending facility. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.