Fed Shutters Signature Bank, Assures SVB Depositors Of Payment

The Biden administration announced Sunday night that all depositors at the failed Silicon Valley Bank (SVB) would have access to all their money on Monday morning, approving an extraordinary intervention aimed at averting a crisis in the financial system, Jeff Stein, David J. Lynch, Tony Romm and Tyler Pager reported for Washington Post.

Photo Insert: The initiative is aimed at resolving one of the problems that led to SVB’s failure: unrealized losses on the bank’s government securities.

Treasury Secretary Janet L. Yellen said that taxpayers would bear none of the burden of protecting depositors. Their funds will be backstopped by a pool of money that is regularly paid into by US banks, which now holds more than $100 billion.

The new Fed program will enable banks to pledge US Treasuries and other safe government securities as collateral in return for loans of up to one year from the central bank.

The initiative is aimed at resolving one of the problems that led to SVB’s failure: unrealized losses on the bank’s government securities. As the Fed raised interest rates last year, the value of those securities fell. Industry-wide, banks at the end of last year reported $620 billion in such paper losses, according to the FDIC.

Authorities said they were also extending protection to depositors of a second bank, Signature Bank of New York, which state regulators closed on Sunday as unease in the financial sector spread.

Separately, the Federal Reserve announced that it was creating a lending facility for the nation’s banks, designed to buttress them against financial risks caused by Friday’s collapse of SVB.

Fed officials declined to provide a specific figure for the size of that new loan program, but made clear it would be large enough to cover trillions of dollars in potential requests.

The series of crisis maneuvers by federal authorities — announced just hours before the start of trading in Asia — reflected the fear that has rippled through the banking sector just a few days after the collapse of SVB.

The decision by Treasury to backstop all deposits at SVB and Signature — not just those up to $250,000 that are insured under federal law — rested on a judgment that it was necessary to avoid a wider “systemic” meltdown.

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