Silicon Valley Bank collapse: United States, United Kingdom try to stem fallout from SVP failure

NEW YORK — US and UK governments are taking extraordinary steps to avert a possible banking crisis after the collapse of California’s Silicon Valley bank sparked fears of a broader upheaval.

US regulators worked all weekend to find a buyer for the bank, which had more than $200 billion in assets and targeted tech startups, venture capital firms and well-paid tech workers.

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

The pledges came as part of an expansive emergency lending program aimed at preventing a spate of bank runs that would endanger the stability of the banking system and the economy at large.

Meanwhile, the Bank of England and the UK Treasury announced early Monday that they were facilitating the sale of the bank’s London-based subsidiary to HSBC, Europe’s largest bank, and raising the safety of £6.7 billion of deposits ( 8.1 billion US dollars) would have guaranteed.

Regulators in the US rushed to shut down Silicon Valley Bank on Friday as it experienced a traditional bank run where depositors withdrew their funds all at once. It is the second largest bank failure in US history, behind only Washington Mutual in 2008.

In a sign of how fast the financial hemorrhage was happening, regulators announced that New York-based Signature Bank had also failed and would be seized on Sunday.

With more than $110 billion in assets, Signature Bank is the third largest bankruptcy in US history. Another struggling bank, First Republic Bank, announced Sunday that it had boosted its financial health by gaining access to funding from the Fed and JPMorgan Chase.

The developments left markets nervous as trading began on Monday. Asian and European markets fell, but not dramatically, and US futures were down.

To boost confidence in the banking system, the Treasury Department, Federal Reserve and FDIC said Sunday all Silicon Valley Bank customers would be protected and able to access their money.

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

Under the plan, depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the $250,000 insurance limit, will be able to access their money Monday.

The UK also acted quickly, working all weekend to arrange the sale of Silicon Valley Bank UK Ltd, the UK arm of the California bank, for the notional amount of one pound.

Although the bank is small, accounting for less than 0.2% of UK bank deposits according to central bank statistics, it has played a huge role in funding tech and biotech startups that the UK government is counting on to spur economic growth.

Jeremy Hunt, chief financial officer of the UK government, said some of the country’s leading tech companies may have been “wiped out”.

“When you have very young companies, very promising companies, they are also fragile,” Hunt told reporters, explaining why authorities were so quick to respond. “They have to pay their employees and were concerned they literally couldn’t access their bank account at 8am this morning.”

He stressed that there has never been “systemic risk” to the UK banking system.

In the US, officials characterized their lending program as similar to what central banks have been doing for decades: Lend credit to the banking system for free so customers can be sure they can access their accounts when they need them.

This will allow banks that need to raise cash to pay depositors to borrow that money from the Fed, rather than having to sell Treasuries and other securities to raise it.

Silicon Valley Bank began sliding into bankruptcy when it was forced to sell some of its government bonds at a loss to fund its customers’ withdrawals. Under the Fed’s new program, banks can post these securities as collateral and borrow from the emergency facility.

The Treasury has set aside $25 billion to cover any losses. But Fed officials said they anticipate not having to use that money because the securities pledged as collateral have very little risk of default.

Although Sunday’s moves represented the largest government intervention in the banking system since the 2008 financial crisis, the measures are relatively limited compared to what was done 15 years ago. The two failed banks themselves were not bailed out, and no tax money was made available to them.

President Joe Biden said Sunday night, while returning to Washington aboard Air Force One, that he would address the situation Monday.

In a statement, Biden also said he was “determined to hold those responsible for this mess fully accountable and to continue our efforts to strengthen oversight and regulation of larger banks so that we don’t find ourselves in that position again.”

Some prominent Silicon Valley executives feared that if Washington didn’t bail out the failed bank, customers would attack other financial institutions in the coming days. Share prices at other banks that supply tech companies, including First Republic and PacWest Bank, have plummeted in recent days.

The bank’s clients include a range of companies in California’s wine industry, where many wineries depend on Silicon Valley Bank for loans, and tech startups committed to fighting climate change.

Tiffany Dufu, founder and CEO of The Cru, a New York-based women’s career coaching platform and community, posted a video on LinkedIn from an airport restroom on Sunday, saying the banking crisis has tested her resilience placed.

With her money tied up at Silicon Valley Bank, she had to pay her employees from her personal bank account. Assisting with two teenagers who will be going to college, she said she was relieved to hear the government’s intention was to make savers healthy.

“Small companies and early-stage start-ups don’t have much access to leverage in a situation like this, and we often find ourselves in a very vulnerable position, especially when we have to fight so hard to get the wires into your bank before ___ 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 have contributed to this report.