Biden promised emergency measures to save the US banking system

U.S. financial regulators took emergency action Sunday evening to stave off potential contagion from the collapse of Silicon Valley Bank (SVB). The measures include ensuring that the bankrupt bank’s depositors have access to all their money on Monday morning, writes The Guardian.

Regulators announced the measure in a joint statement by Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell and Federal Deposit Insurance Corporation (FDIC) chief Martin Grunberg.

“Depositors will have access to all their money starting Monday, March 13th. The taxpayer will not suffer any loss related to the liquidation of Silicon Valley Bank,” they said in a statement.

The announcement comes after Signature Bank was closed on Sunday by regulators, the second bankruptcy in a week.

“From a rational standpoint, this should be enough to stop the spread of any contagion and close even more banks, which can happen in the blink of an eye in the digital age,” said Paul Ashworth, an analyst at Capital Economics. “But contagion has always been more about irrational fear, so we would like to emphasize that there is no guarantee that this will work.”

Banks will also now be allowed to borrow virtually unlimited amounts from the Federal Reserve for next year, as long as the loans are backed by sound government securities, allowing financial firms to avoid having to sell a class of investments that are losing value due to the Fed’s high interest rate policy.

This means banks can easily access depositors’ cash without having to sell government bonds, which have fallen in value over the past year due to rising interest rates.

“The American people and American businesses can rest assured that their bank deposits will be there when they need them,” Joe Biden said in a statement. The president is set to speak on Monday to talk about how the US will support a sound banking system.

“I am determined to hold the perpetrators of this mess to full account and continue our efforts to strengthen the oversight and regulation of large banks so that we are no longer in this position,” Biden promises the Americans.

The intervention came after Treasury Secretary Yellen said Sunday there would be no bailout for Silicon Valley Bank, which collapsed this week, raising fears of a crisis, but also said the Biden administration was working with regulators to help savers. affected by the fall of the SVB.

Yellen said the current conditions are not consistent with the financial crisis of 2008, when the collapse of major institutions threatened to bring down the global financial system. She also tried to allay fears that the collapse of a regional bank could affect the US banking system to the tune of $23 trillion.

“The American banking system is really safe and well capitalized and resilient,” Yellen told CBS Face the Nation. “Americans can have confidence in the safety and soundness of our banking system. Let me be clear that during the financial crisis, there were investors and owners of the systemic big banks that were bailed out…and the reforms that have been put in place mean we’re not going to do it again. But we are concerned about contributors and are focused on trying to meet their needs.”

The sudden collapse of a $212 billion California bank that mainly lent to tech startups has alarmed investors. Its clients include Etsy, Roku and Vox Media, and its collapse rocked a tech sector already facing hardships, including unprecedented layoffs.

On Friday, SVB was placed under the control of the Federal Deposit Insurance Corporation (FDIC), which guarantees deposits up to $250,000. By some estimates, many companies and individuals could lose more than half of deposits above this amount.

Mark Warner, a Virginia Democrat on the US Senate Banking Committee, said the SVB was “in a quandary” because of higher interest rates. The raid on the bank last week, with $42 billion withdrawn on Thursday alone, was hastened by “some actors,” he told ABC this week.

Risk and finance consulting firm Kroll said it was “unlikely that SVB-style bankruptcy will spread to large banks.” But the company warned that smaller local banks could run into trouble, the risk “much higher if uninsured SVB depositors are not reinstated.”

The value of the regional banks has plummeted since the SVB’s troubles. New York-based Signature Bank provides banking services to law firms. Regulators said the decision to close it was made “in light of market developments, monitoring market trends.” Other banks, including First Republic Bank, Western Alliance and PacWest, were also affected by the SVB fall.

The failure of the SVB “could be the first cockroach in the basement,” investment manager Fredrick Russell told The Wall Street Journal. The failed bank reportedly had no risk officer for several months before it collapsed.

“Banks get thrown into a dark pool of complacency, and then they lower their quality standards,” Russell said.