Silicon Valley Bank deposits secured, fears of ‘economic meltdown’, bitcoin contagion
The US government has taken an extraordinary step to protect confidence in the country’s financial system after the collapse of a major bank.
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The collapse of Silicon Valley Bank (SVB) has sent shockwaves through the global economy as fears grow of a bank-run in the US on Monday (local time).
The bank – which serviced start-ups in Silicon Valley – went bust on Friday. It was the second-biggest bank failure in US history.
The collapse has now promoted an “extraordinary” move by the US government to protect deposits at SVB.
The Treasury Department, Federal Reserve, and the Federal Deposit Insurance Corporation (FDIC) said in a joint statement this morning that depositors of SVB would have access to all of their money.
“Today we are taking decisive actions to protect the US economy by strengthening public confidence in our banking system,” the joint statement read.
“This step will ensure that the US 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.”
US Treasury Secretary Janet Yellen approved actions enabling the FDIC to complete its resolution of SVB “in a manner that fully protects depositors”, the statement said.
The announcement means depositors will have access to all of their money starting Monday (local time), March 13 — not just the $250,000 ceiling that was insured.
American taxpayers will not be footing the bill, as any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks.
It comes after Ms Yellen confirmed on Sunday that the US government would not bail out SVB.
“During the financial crisis, there were investors and owners of systemic large banks that were bailed out,” Ms Yellen said on CBS Face the Nation.
“And the reforms that have been put in place means that we’re not going to do that again.”
She said officials were “concerned about depositors and are focused on trying to meet their needs”.
The Federal Deposit Insurance Corporation (FDIC) has taken control of the bank and begun the process to auction off SVB assets. The final bids are due on Sunday (local time).
Earlier, it was revealed that the US Federal Reserve was considering the “extraordinary” step of forming a fund to backstop deposits if more banks fail in a bid to help contain panic and reassure depositors, Bloomberg reported, citing unnamed officials.
Investors will be left high and dry though.
It comes as hedge-fund manager Bill Ackman warned of an economic meltdown on Monday as uninsured bank customers rush to withdraw cash.
In a rambling, 649-word, one-paragraph tweet on Saturday, the billionaire predicted that uninsured bank customers would rush to withdraw cash unless the government stepped in to guarantee their funds.
“The [government] has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing [SVB Financial Group] to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank.
“Absent [J.P. Morgan, Citigroup or Bank of America] acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the [government] guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’,” he wrote on Twitter.
Ms Yellen said the US banking system was safe, well-capitalised and resilient.
“I simply want to say that we’re very aware of the problems that depositors will have,” Ms Yellen said on CBS.
“Many of them are small businesses that employ people across the country and of course this is a significant concern and working with regulators to try to address these concerns.”
Bitcoin price
The fall of Silicon Valley Bank is causing reverberations around the world and could rout cryptocurrencies including bitcoin as it emerges that stablecoin issuer Circle had $3.3 billion in the SVB.
Stablecoins, which are supposed to mimic the value of the US dollar, are vulnerable to bank-runs as investors fear there is not enough cash in reserve.
The price of USD Coin dived to below 85 cents on Saturday morning as panicked investors sought to cash out. USDC later bounced back as Circle pledged to cover any shortfall.
Big companies with exposure to SVB include Circle: $3.3 billion, Roku: $487 million, BlockFi: $227 million, Roblox: $150 million, Ginkgo Bio: $74 million, IRhythm: $55 million, RocketLab: $38 million, SangamoTherapeutics: $34 million, LendingClub: $21 million and Payoneer: $20 million.
Investors are warily watching the price of bitcoin and other cryptocurrencies after Silvergate, a crypto-friendly bank, went bust last week.
Silvergate was hit by a surge of customer withdrawal following the meltdown of crypto exchange FTX last year.
Amid the chaos, Binance CEO Changpeng “CZ” Zhao and Tesla CEO both hinted they may have to acquire SVB.
“Is it time yet? Not sure.” CZ tweeted as he linked a report that Binance was considering buying banks.
Mr Musk also wrote he was “open to the idea” of Twitter buying SVB.
Bank bonuses paid out
SVB employees received their annual bonuses shortly before the bank was seized Friday, NBC News reported late Saturday.
The bank traditionally hands out bonuses for the prior year’s work on the second Friday in March, and the payments had been in the works for days, sources familiar with the matter told CNBC.
It’s unclear how much cash was distributed, but NBC said the bonuses likely ranged from $14,000 each for associates to $140,000 apiece for managing directors, based on figures posted on the Glassdoor website.
In 2019, Bloomberg reported that Silicon Valley Bank employees were the highest-paid among any public bank in the US, raking in an average of $250,683 each in 2018.
Meanwhile, depositors “are being told they will receive 30% to 50% of their money on Monday,” Fox Business senior correspondent Charlie Gasparino tweeted Sunday, citing bankers with knowledge of the situation.
Mr Gasparino, a Post columnist, added that bank customers will get “most of the rest over time if there is no solution ie complete @FDICgov coverage or sale.”
During an appearance on Fox & Friends, Mr Gasparino called the bank’s failure “a warning sign of just how screwed up the plumbing in our banking system and our economy is.”
– with the New York Post and Fox News
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