Governments adopt exceptional measures to curb bank panic

Governments adopt exceptional measures to curb bank panic

Governments adopt exceptional measures to curb bank panic

NEW YORK – After the unprecedented fall of Silicon Valley Bank, governments in the UK as well as the United States took exceptional measures to avert a banking crisis, even as another significant bank was shut down. Governments adopt exceptional measures to curb bank panic

The sale of Silicon Valley Bank UK to HSBC was “facilitated” by the UK Treasury as well as the Bank of England, who also guaranteed the security of the deposits worth $8.1 billion.

Throughout the weekend, British officials searched for a buyer for the California-based bank’s UK business. The bank’s demise was the 2nd largest bank failure in history.

Treasury Secretary Jeremy Hunt tweeted, “This morning, the government as well as the Bank of England enabled a private sale of Silicon Valley Bank UK to HSBC. Deposits will be safeguarded without assistance from taxpayers. I promised to protect the IT sector yesterday, and we have been working hard to keep that pledge.

According to HSBC, Silicon Valley Bank UK Ltd. will be purchased for one pound.

Additionally, US regulators spent the entire weekend looking for a buyer for the bank. On Sunday, it appeared that these attempts had failed. U.S. regulators, however, gave all depositors at the failing institution the reassurance that they could swiftly retrieve all of their money.

The Santa Clara, Calif. bank made the disclosure amid worries that the causes that led to the demise could spread.

Regulators stated on Sunday that New York-based Signature Bank had also collapsed and was subsequently seized as a sign of how quickly the financial hemorrhage was taking place. The third-largest bank failure in American history, Signature Bank had assets of more than $110 billion.

Asian markets were uneasy as trading got underway on Monday due to the impending financial disaster that U.S. regulators had to step in to stop. In morning trade, the S&P/ASX 200 in Australia down 0.3%, the Kospi in South Korea fell 0.4%, and the benchmark Nikkei 225 in Japan fell 1.6%. Shanghai Composite jumped 0.3%, while the Hang Seng in Hong Kong increased 1.4%.

All Silicon Valley Bank customers will be protected and have access to their money, the Treasury Department, Federal Reserve, and FDIC announced on Sunday in an effort to restore confidence in the financial system. They also disclosed measures meant to safeguard bank clients and stop more bank runs.

“This action will guarantee that the U.S. banking system continues to execute its critical functions of safeguarding deposits as well as providing access to credit to individuals and companies in a manner that fosters strong and sustainable economic growth,” the agencies stated in a joint report.

According to the plan, customers at Silicon Valley Bank as well as Signature Bank will have access to their funds starting on Monday, even if their holdings are greater than the $250,000 insurance cap.

Likewise on Sunday, First Republic Bank, another troubled bank, declared that access to money from the Fed & JPMorgan Chase had improved its financial situation.

To forestall a wave of bank runs that would endanger the reliability of the financial system and the economy as a whole, the Fed late Sunday unveiled an extensive emergency lending program. The program, according to Fed officials, is similar to what central banks have been doing for years: lending freely to the banking system to provide clients peace of mind that they can access their funds whenever they need to.

The credit facility will let banks borrow money from the Fed instead of having to sell Treasury securities as well as other securities to generate cash to pay depositors. To cover customer withdrawals, Silicon Valley Bank was compelled to sell some of its Treasury securities at a loss. Banks can borrow from the crisis facility by posting those securities as security under the Fed’s new scheme.

To cover any losses suffered under the Fed’s emergency loan facility, the Treasury has cast aside $25 billion. The securities deposited as collateral, according to Fed officials, have a very low default risk, so they do not anticipate needing to utilize any of that money.

According to analysts, the Fed’s plan should be sufficient to stabilize the money markets on Monday.

The potential of future contagion has been considerably reduced as a result of today’s move, according to economists at the investment bank Jefferies. “Monday will undoubtedly be a difficult day for many people working in the regional banking sector,” they wrote in a research note.

The government’s efforts on Sunday were the largest since the financial crisis of 2008, but they were still very modest in comparison with what had been done 15 years earlier. The two bankrupt banks themselves haven’t been saved, and the taxpayers haven’t given the institutions any money.

As he climbed aboard Air Force One to return to Washington on Sunday evening, President Joseph Biden announced that he will address the bank issue on Monday. In a statement, Biden said that he was “firmly committed to making those responsible for this catastrophe completely accountable” and that “our efforts to tighten regulation and oversight of larger institutions will continue” in order to “ensure that we do not find ourselves in this situation again.”

On Friday, Silicon Valley Bank, a financial organization with much more than $200 billion in assets, faced a conventional run on the bank, in which depositors raced to take all of their money at once. Authorities were forced to act quickly to liquidate the firm. It is the second-largest bank collapse in American history, trailing only Washington Mutual’s failure in 2008.

Some well-known Silicon Valley CEOs worried that if Washington didn’t save the failing bank, customers might start making runs on other banking firms soon. Several banks that do business with technology businesses, such as First Republic Bank & PacWest Bank, have seen stock prices plummet in recent days.

Many wineries in California that depend on Silicon Valley Bank for financing, as well as technological businesses working to battle climate change, are among the bank’s clients. Silicon Valley has received less than $80 million in cash deposits from Sunrun, a company that sells & leases solar energy systems. The apparel shopping website Stitchfix recently revealed that it had a credit line with Silicon Valley Bank as well as other lenders for up to $100 million.

In a video posted on LinkedIn on Sunday from an airport restroom, Tiffany Dufu, the founder and chief executive officer of The Cru, a career training platform as well as community for women located in New York, said the bank turmoil was trying her fortitude. She had to use her personal bank account to pay her employees because her money was locked up at Silicon Valley Bank. She said she was happy to find out that the government’s goal is to make depositors whole because she has two adolescents to support who would be attending college.

When its clients, primarily technology companies in need of money as they battled to obtain financing, started pulling their deposits, Silicon Valley Bank started to go under. The bank had to sell bonds at a loss to pay for the withdrawals, which resulted in the biggest financial institution failure in the United States since the financial crisis’s height.

The main issue for Silicon Valley Bank, according to Treasury Secretary Janet Yellen, is escalating interest rates,that have been raised by the Federal Reserve to fight inflation. As rates increased, several of its assets, including bonds and mortgage-backed securities, shed market value.

Almost all of the bank failures during the financial crisis of 2008, according to Sheila Bair, who was the FDIC’s chairperson at the time, included the sale of a failing bank to a sound bank. The greatest result would be for the healthy acquirer to additionally cover the uninsured since they sought the franchise value of those substantial depositors.

However, she claimed that Silicon Valley Bank’s liquidity crisis and subsequent bank run prevented them from having enough time to plan to promote the bank. They are currently playing catch-up as a result of needing to do that.