With SVB and Signature, the US is creating a “systemic risk exception” for systemically unimportant banks

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A man places a sign on the door of Silicon Valley Bank in Santa Clara, California

is important now.

With a firm response to the threat of a full-fledged banking crisis, US banking regulators issued a joint statement on the evening of March 12, announcing that all depositors Silicon Valley Bank Failed (SVB) will have full access to its funds starting March 13.

The US Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) also announced that they are creating a “similar systemic risk exception” for customers of Signature Bank, which is known for serving crypto industry customers. Was close earlier in the day by state regulators in New York.

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As of the end of this week, the did not consider any bank to be systemically important. neither appears on Global list of systemically important banks (PDF) Maintained by International financial standards board, Nor was it included in the Fed’s most recent list of US banks deemed large enough to undergo the required stress test.

The ability of these banks to fly under the radar in America was no accident. Greg Baker, CEO of SVB US officials lobbied several years ago to raise the asset limit at which banks would be considered systemically important.

The threshold was raised from $50 billion in 2018 to $250 billion in assets in 2018. SVB had just passed the $50 billion mark when Baker pushed for change; When it collapsed last week, it had $209 billion in assets, making it Second largest US bank failure,

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a new emergency loan program

If SVB and Signature were not significant, systemically speaking, as concerns, in failure they clearly presented a greater risk to the financial system than to the US government. In addition to protecting uninsured deposits in SVB and Signature, the Treasury Department, the Fed and the FDIC announced an emergency loan program To ensure that “banks have the capacity to meet the needs of all their depositors.” The program will accept bonds and other securities as collateral, and value them at par rather than at current market prices.

Rising interest rates have driven down bond prices, which has contributed to the squeeze in SVB-A. Fire sale of bank’s bond portfolio This created a deficit, which triggered a sudden outflow of deposits in a classic run on the bank.

Does any of this spell bad for the Fed? insist on continuing to hike rates remains to be seen.

Which US banks are stress tested by the Fed?

actions by the to backstop the banking system suggest SVB, which has a tech- and startup-heavy client list, and Signature, which has been popular in recent years for its willingness Work with cryptocurrency businessesThere were much bigger systemic risks than the regulators had acknowledged.

As a result of the increased asset limits adopted during the Trump Administration, SVB and Signature, which had assets of $110 billion When it failed, none of them were 33 American Institute (PDF, p.13) who participated in the recent stress tests required by the Fed to predict how well large banks would perform in a hypothetical recession.

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These are the banks, listed alphabetically, that participated in the stress test; they all passed,

  • associate financial

  • American Express

  • Bank of America

  • Bank of New York Mellon

  • Barclays US

  • BMO Financial

  • BNP Paribas USA

  • Capital One Financial

  • charles schwab

  • Citigroup I

  • Citizen Financial

  • Credit Suisse Holdings (USA)

  • db usa

  • Search Financial Services

  • fifth third bancorp

  • goldman sachs group

  • HSBC Holdings

  • Huntington Bankshares

  • JPMorgan Chase

  • Keycorp Category

  • M&T Bank Corporation

  • Morgan Stanley

  • Northern Trust

  • PNC Financial Services Group

  • RBC US Group Holdings

  • sector financial

  • Santander Holdings USA

  • state Street

  • TD Group US Holdings

  • Truest Financial

  • UBS America Holding

  • US Bancorp

  • Wells Fargo

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