Hours before the start of the trading day in Asia, top US regulators are considering guaranteeing all deposits at a Silicon Valley bank in a bid to prevent a wider panic in the global financial sector. Washington Post informed of Sunday late night.
Between the Federal Reserve, the US Treasury, the FDIC and the White House, an outright buyer for the failing bank is the best-case scenario. “Most bank failures are resolved in this way and enable depositors to avoid losing any money,” according to Post, The FDIC reportedly launched an auction for the SVB properties yesterday, with the final bid at 2 p.m. EST.
They’ve got less than six hours before trading markets open in Shanghai and Tokyo, where the global ramifications of last weekend’s bank failure will become clear.
One of the options on the table includes providing a “backstop” for all uninsured deposits at a Silicon Valley bank. Post An unnamed source was quoted as saying that federal officials are considering “legally and politically equitable ways to protect all uninsured deposits”.
Such a move would not technically be a bailout – something Treasury Secretary Janet Yellen ruled out over the weekend—because it would tap into an insurance fund paid out by US banks instead of falling back on taxpayer money.
Silicon Valley Bank was among the 20 largest banks in the US when it failed on Friday after the bank was run by customers. California State Regulator bank kept under the control of the FDIC, which in turn created a new entity—the Deposit Insurance National Bank of Santa Clara—through which the remaining assets are managed.
The FDIC guarantees deposits of up to $250,000 at member banks, but many Silicon Valley bank customers kept significantly higher balances. The bank described itself as a “financial services partner for the innovation economy” to tech companies and startups, and several firms deposited the proceeds of the entire fundraising round.
According to Silicon Valley Bank’s most recent regulatory filing, more than 85% of its deposits were uninsured.
Silicon Valley Bank also had a Twitter account @SVB_Financial removed on Sunday.
In order to proceed with the “backstop”, the failure of the Silicon Valley bank would have to be classified as part of a “systemic risk” and agreed upon by multiple regulatory bodies. This is a high bar, as many financial industry analysts were confident in the stability of the US financial sector, despite the collapse of Silicon Valley Bank.
“This is not a systemic event – this is a medium-sized bank that was poorly managed,” said Anil Kashyap, a business professor at the University of Chicago. Post, “It can be a bit messy, but it’s different if you have someone at the core of the financial system stop paying someone else at the core of the system and then the core explodes.”
Others, meanwhile, intensified their criticism of federal regulators, saying that the collapse of the Silicon Valley bank exposed deficiencies in their practices.
Post The report is credited to three people with knowledge of the matter, who spoke on condition of anonymity to describe private deliberations. None of the cited agencies commented on the record.