Biden speaks on Silicon Valley Bank collapse, US economy

NEW YORK — Governments in the US and UK are taking extraordinary steps to avert a potential banking crisis following the failure of the California-based Silicon Valley Bank, sparking fears about a larger change.

US regulators worked through the weekend to find a bank buyer with more than $200 billion in assets and catering to tech startups, venture capital firms and tech employees. highly paid.

While those efforts appear to have failed, officials assured all of the bank’s customers that they would be able to access their funds on Monday.

The guarantees were introduced as part of an expanded emergency lending program aimed at stemming a wave of bank runs that could threaten the stability of the banking system and the economy as a whole.

Meanwhile, the Bank of England and the UK Treasury said early Monday that they had facilitated the sale of a London-based bank subsidiary to HSBC, Europe’s largest bank. Europe, ensuring the safety of deposits worth 6.7 billion pounds ($8.1 billion).

Regulators in the United States rushed to shut down Silicon Valley Bank on Friday as it underwent a traditional bank run, where depositors rushed to withdraw their funds all at once. . It was the second-largest bank failure in US history, behind only the 2008 bankruptcy of Washington Mutual.

In a sign of how quickly the financial bleed was unfolding, regulators announced that New York-based Signature Bank also went bankrupt and went into foreclosure on Sunday.

With over $110 billion in assets, Signature Bank was the third-largest bank failure in US history. Another struggling bank, First Republic Bank, announced on Sunday that it has bolstered its financial health by accessing capital from the Fed and JPMorgan Chase.

The development worries the market as trading begins on Monday. Asian and European markets fell but not significantly, and US futures fell.

In an effort to bolster confidence in the banking system, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation said Sunday that all Silicon Valley Bank customers will be protected and have access to their money.

“This step will ensure that the U.S. banking system continues to fulfill its vital role of protecting deposits and providing access to credit to households and businesses in a way that promotes growth.” strong and sustained economic growth,” the agencies said in a joint statement.

Under the plan, depositors at Silicon Valley Bank and Signature Bank, including those holding over the $250,000 insurance limit, will be able to access their funds on Monday.

The UK also acted quickly, working through the weekend to arrange the sale of Silicon Valley Bank UK Ltd., the UK branch of the California bank, for a nominal amount of one pound.

Although the bank is small, with less than 0.2 per cent of UK bank deposits according to central bank statistics, it has a large role to play in financing companies. tech and biotech startups that the UK government is looking to to boost economic growth.

Jeremy Hunt, the UK government’s finance minister, says some of the country’s top tech companies may have been “obliterated”.

“When you have very young companies, very promising companies, they are also very fragile,” Hunt told reporters, explaining why authorities acted so quickly. . “They need to pay their employees and they are worried that by 8am this morning, they might not be able to access their bank accounts.”

He stressed that there was never a “systemic risk” to the UK’s banking system.

In the US, officials describe their lending program as what central banks have done for decades: Give the banking system free loans so customers trust they can access it. your account whenever needed.

That would allow banks that need to raise cash to pay depositors to be able to borrow that money from the Fed, instead of having to sell Treasuries and other securities to raise funds.

Silicon Valley Bank began to fall into insolvency when it was forced to sell some of its Treasuries at a loss to fund customer withdrawals. Under the Fed’s new program, banks can deposit those securities as collateral and borrow from an emergency facility.

The Treasury has set aside $25 billion to cover any losses incurred. However, Fed officials said they did not expect to have to use any of that money, as the securities offered as collateral carry a very low risk of default.

Although Sunday’s steps mark the most far-reaching government intervention in the banking system since the 2008 financial crisis, the actions are relatively limited compared with what has been done. last year. The two failed banks themselves have not been rescued and taxpayers’ money has not been provided to them.

President Joe Biden said Sunday night as he boarded Air Force One back to Washington that he would speak about the situation on Monday.

In a statement, Biden also said he was “firmly committed to holding fully accountable those responsible for this mess and to continue efforts to strengthen supervision and regulation of the larger banks to We are not in this position again.”

Some prominent Silicon Valley executives fear that if Washington doesn’t rescue the bankrupt bank, customers will flee other financial institutions in the coming days. Share prices have tumbled over the past few days at other banks that cater to tech companies, including First Republic and PacWest Bank.

Among the bank’s clients are companies from California’s wine industry, where many wineries rely on Silicon Valley Bank loans and tech startups devoted to combat Climate Change.

Tiffany Dufu, founder and CEO of The Cru, a career coaching and community platform for women based in New York, posted a video Sunday on LinkedIn from a bathroom in airport, says the banking crisis is testing her resilience.

Given that her money is tied up at Silicon Valley Bank, she has to pay her employees from her personal bank account. With two teenagers to support who are going to college, she said she was relieved to learn that the government’s intention was to make depositors whole.

“Small businesses and early-stage startups don’t have much access to leverage in a situation like this, and we’re often in a very vulnerable position, especially when we have to struggle very hard to get wire to your bank. from the very beginning, especially for me, as a black female founder,” Dufu said. ___ Rugaber and Megerian reported from Washington. Sweet and Bussewitz reported from New York. Associated Press writers Hope Yen in Washington, Jennifer McDermott in Providence, Rhode Island, and Danica Kirka in London contributed to this report.