silicon-valley-bank-collapses

Silicon Valley Bank collapses

World
2 hr 45 min ago

Treasury officials see positive signs in the slowed deposit outflows from small and midsized lenders

From Phil Mattingly

Treasury Department officials have paid especially close attention to the flows of deposits in the wake of their actions Sunday to extend a federal backstop to all of Silicon Valley Bank’s deposits in order to ensure access to all of those funds on Monday.

And the department has seen signs that deposit outflows from small and midsized lenders have slowed, according to a senior Treasury official.

White House and Treasury Department officials spent the day in contact with regulators and bank executives as they monitored the effect of their dramatic emergency actions over the weekend. 

While the early reports don’t mean the risks have dissipated, they do signal that a central component of the administration’s strategy – sending a clear message to depositors that their deposits were, in fact, safe – has had an effect.

“The thing we were targeting was uninsured depositors feeling as if they weren’t protected,” the official said. “The scale and the breadth of what we did has sent that message.”

While regional bank stocks have been hammered throughout the day, there’s also some cautious optimism that their efforts are having an effect as Wall Street firms – most notably JPMorgan – have opened up new lines of credit to some of the most at-risk banks. 

Smaller lenders, also viewed as potentially at risk in the event of contagion, have reported stable conditions. 

It’s clear, however, that administration officials are bracing for – and moving quickly to try and frame – the political fallout. President Joe Biden’s remarks before departing for his West Coast trip included implicit nods to that reality.

The focus on new regulations is tied to that, as was Biden’s explicit, and repeated, assurances that taxpayer dollars are not at risk. 

“This is an important point – no losses will be borne by the taxpayers,” Biden said. “Let me repeat that: No losses will be borne by the taxpayers.”

3 hr 39 min ago

No, you shouldn’t pull your money out of your bank. Here are answers to other key questions

From CNN’s Ramishah Maruf

After Silicon Valley Bank’s stunning collapse became the second-largest bank failure in US history, many customers are wondering if their money is safe.

Here are the answers to some frequently asked questions:

Do I have to worry about cash stored in my bank?

In short, if you have less than $250,000 in your account, then you almost certainly have nothing to worry about. That’s because the US government insures the first $250,000 in eligible accounts.

Many SVB customers had much more than $250,000 deposited and now that they can’t get their money, some companies are struggling to make payroll.

Should I pull my money out of my bank?

No, it doesn’t make sense to take all your money out of a bank, Jay Hatfield, CEO at Infrastructure Capital Advisors and portfolio manager of the InfraCap Equity Income ETF, said. But make sure your bank is insured by the FDIC, which most large banks are.

“I don’t think people should panic, but it’s just prudent to have insured deposits versus uninsured deposits,” Hatfield said.

Your money is most likely not going anywhere. Everyday consumers, on the whole, are unlikely to be affected. But the collapse is a good reminder to be aware of where your money is held, and not to have it all in one place.

“The first bank failure since 2020 is a wake-up call for people to always make sure their money is at an FDIC-insured bank and within FDIC limits and following the FDIC’s rules,” said Matthew Goldberg, a Bankrate analyst.

How does this compare to 2008?

The banking sector should be, theoretically, more stable due to the regulatory reforms put in place after the crisis in 2008.

The government’s actions this weekend also try to prevent the next SVB from happening, further stabilizing the sector after a chaotic week. Rising interest rates meant cheap Treasury bonds SVB and other banks invested in years ago crumbled in value – last week’s bank run was triggered by SVB selling those securities at a steep loss to help pay customers’ deposit withdrawals after people started pulling their money out of the bank.

The Fed also said it will offer bank loans for up to a year in exchange for US Treasury bonds and mortgage-backed securities that lost value. The Fed will honor the debt’s original value for the banks that take the loans.

Find more answers.

3 hr 19 min ago

Republican presidential candidate Nikki Haley criticizes Biden’s response to bank failures

From CNN’s Kate Sullivan

Republican presidential candidate Nikki Haley participates in a conversation with Senator Joni Ernst (R-IA) hosted by the Bastion Institute on March 10, 2023 in Clive, Iowa. (Scott Olson/Getty Images)

Republican presidential candidate Nikki Haley on Monday criticized the Biden administration’s efforts to contain the fallout from two bank failures in recent days, arguing “taxpayers should not be responsible.”

“Joe Biden is pretending this isn’t a bailout. It is. Now depositors at healthy banks are forced to subsidize Silicon Valley Bank’s mismanagement. When the Deposit Insurance Fund runs dry, all bank customers are on the hook. That’s a public bailout. Depositors should be paid by selling off Silicon Valley Bank’s assets, not by the public. Taxpayers should not be responsible,” Haley said in a statement. 

CNN has reported US taxpayers will not be on the hook for either facility, according to regulators.

How this works: The Biden administration will draw from the Deposit Insurance Fund to backfill customers’ deposits, Biden said Monday, reiterating comments from the heads of Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation that the plan would not be funded by taxpayers.

“No losses will be — and this is an important point — no losses will be borne by the taxpayers; let me repeat that, no losses will be borne by the taxpayer,” Biden said in remarks delivered from the White House. “Instead the money will come from the fees that banks pay into the Deposit Insurance Fund.”

The FDIC’s Deposit Insurance Fund (DIF) is used to help pay for operating costs as well as to resolve failed banks. It’s funded by quarterly fees collected from FDIC-insured banks as well as interest earned from its investments in Treasury securities. 

As of December 31, 2022, the DIF’s fund balance was $128.2 billion, according to the FDIC.

4 hr 14 min ago

Democratic leaders say Congress will look at causes of bank failures

From CNN’s Manu Raju

Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jeffries said Monday that Congress will look at the causes of the recent bank failures.

“In the coming days and weeks, Congress will be looking closely at the causes behind the run on Silicon Valley Bank and other banks and how we can prevent a similar crisis in the future,” the two Democrats said in a joint statement.

Schumer and Jeffries also praised President Joe Biden’s handling of the situation so far. The president directed his administration to take a series of actions including backstopping depositors’ funds, making sure taxpayers are not on the hook for these moves, holding those responsible accountable and declining to extend relief to investors of Silicon Valley Bank.

4 hr 41 min ago

Charting interest rates and bank collapses

From CNN’s Renee Rigdon

5 hr 7 min ago

Regulators still plan to pursue sale of Silicon Valley Bank’s assets, sources say

From CNN’s Phil Mattingly

Federal Deposit Insurance Corp. officials declined a bid to purchase assets from the failed Silicon Valley Bank during an auction that took place this weekend, but that doesn’t mean their efforts to secure a sale of the bank’s assets are finished, sources familiar with the matter say. 

Officials who briefed Senate Republicans on the dramatic government actions taken in response to the failure of Silicon Valley Bank and Signature Bank said they were weighing plans for a second auction in the future, the sources said.

The timeline for a second auction was not clear, but the officials noted that the government action to backstop uninsured deposits, as well as the creation of a Federal Reserve-operated emergency lending facility for small and mid-sized banks, created new conditions that may make lenders more willing to submit bids to purchase the failed bank’s assets, the sources said. 

Biden administration officials worked furiously throughout the weekend in an effort to find a buyer for the bank’s assets before ultimately deciding to launch the dual-pronged emergency actions. 

The FDIC solicited bids from other banks to potentially purchase Silicon Valley Bank. But one senior Treasury official noted on Sunday that “things moved very quickly” and that the decision was made to “move early” and trigger the systemic risk exception — a designation that provides more leeway to immediately advance funds to those holding deposits above the current $250,000 threshold covered by FDIC. 

The official noted it would have been “pretty difficult” for a potential buyer to have gone through SVB’s books, agreed to purchase the assets and been in a position to open for business on Monday. 

Instead, the FDIC transferred all of the bank’s deposits and assets to a government-operated “bridge bank” that opened and resumed normal banking hours and business operations.  

5 hr 14 min ago

Downfall of SVB caused by “absolutely idiotic” decisions by leadership, employee says

From CNN’s Matt Egan

The blame game is on for who caused Silicon Valley Bank’s collapse, and the tech sector is pointing the finger at SVB CEO Greg Becker for allowing his company to go down in history as the second-biggest US banking failure on record.

One Silicon Valley Bank employee, who requested anonymity to speak candidly, was dumbfounded by how Becker publicly acknowledged the extent of the bank’s financial troubles before privately lining up the necessary financial support to ride out the storm.

This set the stage for the panic that ensued as customers scrambled to pull their money.

“That was absolutely idiotic,” the employee, who works on the asset management side of Silicon Valley Bank, told CNN in an interview. “They were being very transparent. It’s the exact opposite of what you’d normally see in a scandal. But their transparency and forthright-ness did them in.”

What happened: Becker and his leadership team revealed last Wednesday night a hope (but no firm commitment) to raise $2.25 billion in capital as well as $21 billion in asset sales that sparked a $1.8 billion loss.

That news set off a wave of fear across Silicon Valley, where the bank serves as a key lender to tech startups. Many of them panicked, yanking $42 billion last Thursday alone when Silicon Valley Bank’s stock crashed by 60%, according to filings by California regulators.

By the close of business that day, Silicon Valley Bank had a negative cash balance of about $958 million.

The Silicon Valley Bank insider said the mismanagement of the bank’s balance sheet heading into last week was “stupidity” and questioned the strategy of the CEO and CFO.

Still, the employee, who is a Wall Street veteran, emphasized his belief that the downfall of Silicon Valley Bank was brought on by errors and “naivety,” not outright wrongdoing.

“The saddest thing is that this place is Boy Scouts,” he said. “They made mistakes, but these are not bad people.”

5 hr 40 min ago

Federal Reserve announces review of SVB

From CNN’s Nicole Goodkind and Matt Egan

The Marriner S. Eccles Federal Reserve building in Washington, DC, on Monday, March 13,  (Al Drago/Bloomberg/Getty Images)

The Federal Reserve announced Monday it has launched a review of the supervision and regulation of Silicon Valley Bank following the lender’s sudden implosion.

The Fed said the review will be run by Michael Barr, the central bank’s vice chair for supervision, and the results will be publicly released by May 1.

The review comes just days after Silicon Valley Bank collapsed, raising questions about how regulators — including those at the Fed itself — missed the trouble that was brewing.

“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve,” Fed Chairman Jerome Powell said in a statement.
“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” Barr said in a statement.

5 hr 46 min ago

Stocks close mixed after SVB failure spurs most volatile trading day of the year

From CNN’s Krystal Hur

Stocks closed mixed on Monday after a volatile trading day as investors mulled over federal regulators’ plan to stymie effects from the collapse of Silicon Valley Bank and Signature Bank.

Stocks teetered throughout the day as investors assessed the US government’s actions and how upheaval in the banking sector will affect the Federal Reserve’s monetary policy going forward.

The VIX, which measures market volatility, reached its highest level since late 2022 as shares of US regional lenders dipped in and out of trading halts Monday. Shares of Western Alliance tumbled 47%. First Republic Bank tanked about 62%. Even the larger banks were affected: Wells Fargo fell by roughly 7% and Citigroup dropped by 7.4%.

The 2-year Treasury note, meanwhile, posted its largest three-day yield drop since the Black Monday stock crash in October of 1987.

Tuesday’s Consumer Price Index inflation report for February will offer more clues about inflation rates and future interest rate hikes.

The Dow fell 91 points, or 0.3% in trading on Monday.

The S&P 500 was 0.2% lower.

The Nasdaq Composite gained 0.5%.