US, UK take emergency measures to stem fallout from Silicon Valley bank collapse

NEW YORK (AP) — The U.K. and U.S. governments took extraordinary measures to stop a potential banking crisis after the historic failure of Silicon Valley Bank, even as another major bank closed.

The U.K. Treasury and the Bank of England announced early Monday that they had facilitated the sale of Silicon Valley Bank UK to HSBC, Europe’s largest bank, securing the 6.7 billion pounds ($8.1 billion .) deposits.

British officials worked through the weekend to find a buyer for the California-based bank’s British subsidiary. Its collapse was the second largest bank failure in history.

US regulators also worked through the weekend to try to find a buyer. Those efforts appeared to have failed on Sunday, but US officials assured all depositors that they would be able to access all their money quickly.

The announcement came amid fears that the factors that caused the bankruptcy of the Santa Clara, California-based bank could spread.

Santa Clara police officers exit the Silicon Valley Bank in Santa Clara, California on March 10, 2023.

In a sign of how fast the financial hemorrhaging was happening, regulators announced that New York-based Signature Bank had also failed and was seized on Sunday. With more than $110 billion in assets, Signature Bank is the third largest bank failure in US history.

The near financial crisis left Asian markets reeling as trading opened on Monday. Japan’s benchmark Nikkei 225 sank 1.6 percent in morning trade, Australia’s S&P/ASX 200 lost 0.3 percent and South Korea’s Kospi lost 0.4 percent. But Hong Kong’s Hang Seng rose 1.4 percent and the Shanghai Composite rose 0.3 percent.

In an effort to boost confidence in the banking system, the Treasury Department, the Federal Reserve and the FDIC said Sunday that all Silicon Valley Bank customers will be protected and have access to their money. They also announced measures aimed at protecting the bank’s customers and preventing additional bank runs.

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

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

Also on Sunday, another beleaguered bank, First Republic Bank, announced it had bolstered its financial health by accessing funding from the Fed and JPMorgan Chase.

In a separate announcement, the Fed late Sunday announced an extensive emergency lending program intended to prevent a wave of bank failures that would threaten the stability of the banking system and the economy as a whole. Fed officials characterized the program as what central banks have done for decades: Lend freely to the banking system so customers can be sure they can access their accounts whenever they need to.

The lending facility would allow banks that need to raise cash to pay depositors to borrow that money from the Fed, rather than having to sell bonds and other securities to raise the money. Silicon Valley Bank had been forced to dump some of its bonds at a loss to fund customer withdrawals. Under the Fed’s new program, banks can post these securities as collateral and borrow from the emergency facility.

The Treasury Department has set aside $25 billion to offset any losses incurred under the Fed’s emergency lending facility. Fed officials have said, however, that they don’t expect to use any of that money, since the securities listed as collateral have a very low default risk.

Analysts said the Fed’s program should be enough to calm financial markets.

“Monday will certainly be a stressful day for many in the regional banking sector, but today’s action dramatically reduces the risk of further contagion,” economists at Jefferies, an investment bank, said in a research note.

Although Sunday’s steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, its actions are relatively limited compared to what was done 15 years ago. The two failed banks themselves have not been bailed out and taxpayers’ money has not been provided to the banks.

President Joe Biden said Sunday afternoon as he boarded Air Force One in Washington that he would address the state of the banks on Monday. In a statement, Biden also said he was “committed to holding those responsible for this mess fully accountable and to continue our efforts to strengthen supervision and regulation of the biggest banks so we don’t find ourselves in this position again.”

Regulators had to rush to shut down Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run at the bank where depositors rushed to withdraw their funds immediately. It is the second largest bank failure in US history, behind only the 2008 bankruptcy of Washington Mutual.

Some prominent Silicon Valley executives feared that if Washington did not bail out the failing bank, customers would make runs to other financial institutions in the coming days. Share prices fell in recent days at other banks that serve technology companies, such as First Republic Bank and PacWest Bank.

Among the bank’s clients are a range of companies from the California wine industry, where many wineries rely on Silicon Valley Bank for loans, as well as tech startups dedicated to fighting climate change. Sunrun, which sells and leases solar energy systems, had less than $80 million in cash deposits in Silicon Valley. Stitchfix, the clothing retail website, recently disclosed that it had a line of credit of up to $100 million with Silicon Valley Bank and other lenders.

Tiffany Dufu, founder and CEO of The Cru, a New York-based career coaching and community platform for women, posted a video on LinkedIn on Sunday from an airport bathroom, saying the banking crisis is testing her resilience. Since her money was tied up in Silicon Valley Bank, she had to pay her employees from her personal bank account. With two teenagers arguing over who will go to college, she said she was relieved to hear the government’s intention is to clean up depositors.

“Small businesses and early stage startups don’t have a lot of access to leverage in a situation like this and we’re often in a very vulnerable position, especially when we have to fight so hard to get the wires into your bank in the first place, especially for me , as a black female founder,” Dufu told The Associated Press.

Silicon Valley Bank began its slide into insolvency when its customers, mostly tech companies that needed cash as they struggled to find financing, began withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the biggest failure of a US financial institution since the height of the financial crisis.

Treasury Secretary Janet Yellen pointed to rising interest rates, which have been raised by the Federal Reserve to fight inflation, as the key problem for Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as interest rates rose.

Sheila Bair, who chaired the FDIC during the 2008 financial crisis, recalled that with almost all bank failures then, “we sold a failed bank to a healthy bank. And usually, the sane buyer would also cover the uninsured because they wanted the franchise value of these large depositors so optimally, that’s the best outcome.”

But with Silicon Valley Bank, he told NBC’s “Meet the Press,” “that was a liquidity failure, it was a bank, so they didn’t have time to prepare to promote the bank. So they have to do that now and play catch-up.”

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.

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