SVB collapse: Federal Reserve launches review of bank failure

Misty Severi

March 13, 08:15 PM March 13, 08:15 PM

The Federal Reserve launched a review of its oversight and regulation of Silicon Valley Bank on Monday after the bank collapsed Friday.

Fed Chairman Jerome Powell announced that Vice Chairman for Supervision Michael Barr would lead the review. The report will be released to the public on May 1, 2023.

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"The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve," Powell said in a news release.

SVB, which was the 16th largest federally insured bank, was closed by regulators in the state Friday. The shutdown came after attempts to raise capital failed. The bank failure is the largest since 2008. The bank scared investors earlier in the week when it announced that it sold off Treasurys at a loss, causing a run on the bank.

Barr supported the review, agreeing that the bank closure deserved a careful examination of the supervision and regulation the reserve used on the firm.

"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 the release.

Although there are fears that the failure of SVB and subsequent closure of the New York-based Signature Bank, which closed on Sunday, was a repeat of the 2008 economic crisis, White House press secretary Karine Jean-Pierre told reporters that was not the case.

"This is not 2008," Jean-Pierre said. "The Obama-Biden administration put in place tough requirements to ensure banks have more capital and sufficient liquid assets. Depositors have more protection for their deposits, and regulators have the tools to supervise larger institutions that deal with disruptions."

President Joe Biden said the federal government will not bail out the banks, but he guaranteed SVB would have deposits, including uninsured amounts, so customers would have access to their money as early as Monday.

"All customers who had deposits at these banks can rest assured, rest assured they'll be protected and they'll have access to their money as of today. That includes small businesses across the country that bank there and need to make payroll, pay their bills, and stay open for business," Biden said Monday morning. "No losses will be borne by the taxpayers."

SVB collapse: Joe Biden to address nation on banking system after shock collapse

Liam Quinn

March 13, 08:10 AM March 13, 08:21 AM

President Joe Biden will address the nation Monday morning on the Silicon Valley Bank collapse and the country's banking system.

The president will speak from the White House at 9 a.m.

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On Sunday, Biden promised to punish those responsible for the collapse of Silicon Valley Bank as his administration seeks to make the financial institution's customers whole.

"Over the weekend, and at my direction, the Treasury Secretary and my National Economic Council Director worked diligently with the banking regulators to address problems at Silicon Valley Bank and Signature Bank," the statement read. "I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe."

"I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again."

Earlier Sunday, the Biden administration guaranteed Silicon Valley Bank deposits, including uninsured amounts, so customers will have access to their money as soon as Monday after the tech-focused institution collapsed last week. The intervention, along with the decision to unwind similar Signature Bank, is aimed at avoiding additional bank runs and helping business clients remain operational.

Regulators will not protect shareholders and unsecured creditors, and there will be no bailouts, according to Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell, and Federal Deposit Insurance Corporation Chairman Martin Gruenberg on Sunday evening.

Regulators shut down Signature Bank two days after Silicon Valley Bank collapse

Emily Jacobs

March 12, 09:10 PM March 12, 09:10 PM

Federal and state banking regulators announced Sunday that Signature Bank, one of the main financial institutions for cryptocurrency firms, had been shut down.

The decision to shutter the New York-based bank was revealed in a joint statement from the Federal Reserve, Treasury Department, and Federal Deposit Insurance Corporation. The trio said that the FDIC would make customers of Signature and Silicon Valley Bank, whose Friday collapse sparked fears of a possible banking crisis, whole. The Signature failure is the third-largest in U.S. banking history, while SVB is the second.

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“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” the statement about SVB read, adding that "no losses will be borne by the taxpayer."

New York bank regulators said in a separate statement Sunday that the closure was "in light of market events, monitoring market trends, and collaborating closely with other state and federal regulators” to protect both consumers and the financial system.

The FDIC also established a "bridge" successor bank, which will enable Signature customers to access their funds on Monday morning. The regulator named Fifth Third Bancorp CEO Greg Carmichael as chief executive of the bridge bank.

The moves come as federal and state regulators attempt to prevent a major banking crisis from spreading.

New York Gov. Kathy Hochul, a Democrat, said Sunday that she hoped the U.S. government's actions would provide "increased confidence in the stability of our banking system."

"Many depositors at these banks are small businesses, including those driving the innovation economy, and their success is key to New York's robust economy," she said.

The state of California shuttered SVB on Friday, just two days after the nation's 16th largest federally insured bank announced that it needed to raise more than $2.2 billion to remain solvent, which sent its stock price plunging over 60% in 48 hours. The bank had achieved financial stardom during the COVID-19 pandemic because major cash deposits from the booming firms. Its securities portfolio rose from roughly $27 billion in 2020's first quarter to approximately $127 billion at the end of 2021.

The fact that most of SVB's assets were seemingly secure — they were mainly longer-term government bonds — led many investors to feel the bank was secure. The government securities bought by SVB pay a fixed rate, so when market interest rates were raised, a gap began to grow between how much the securities were worth on the open market and what they were valued on the bank's books. The unrealized losses in SVB's securities portfolio in December had grown to more than $17 billion, a number expected to rise as the securities could only be sold at a loss.

Silicon Valley Bank collapse: US regulators announce plan to bail out customers

Emily Jacobs

March 12, 07:21 PM March 12, 07:58 PM

Federal bank regulators said Sunday that the Federal Deposit Insurance Corporation will employ emergency measures to back Silicon Valley Bank deposits in full.

News of the U.S. decision to guarantee deposits beyond the federally insured ceiling of $250,000 came in a much-anticipated joint statement from the Federal Reserve, Treasury Department, and FDIC two days after SVB's sudden collapse, which has sparked fears of a possible banking crisis. The Treasury also said that SVB's senior management team would be removed.

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“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the president, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, Calif., in a manner that fully protects all depositors,” the statement read. “Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

The agencies also plan to enact a similar plan for Signature Bank, which was closed on Sunday by New York's state chartering authority.

SVB achieved financial stardom during the COVID-19 pandemic because major cash deposits from the booming firms increased its deposits from $60 billion in the first quarter of 2020 to over $200 billion in December 2022, the Wall Street Journal reported. Its securities portfolio rose from roughly $27 billion in 2020's first quarter to approximately $127 billion at the end of 2021.

The fact that most of SVB's assets were seemingly secure — they were mainly longer-term government bonds — led many investors to feel the bank was secure. The government securities bought by SVB pay a fixed rate, so when market interest rates were raised, a gap began to grow between how much the securities were worth on the open market and what they were valued on the bank's books. The unrealized losses in SVB's securities portfolio in December had grown to more than $17 billion, a number expected to grow, as the securities could only be sold at a loss.

The FDIC moved SVB's remaining assets on Friday to the newly created Deposit Insurance National Bank of Santa Clara, leaving customers to spend the weekend unsure if they would be able to secure their capital on Monday morning.

Treasury Secretary Janet Yellen said in an interview with CBS's Face the Nation on Sunday morning that while the federal government did not intend to bail out the collapsed bank itself, regulators were looking at solutions for depositors.

"From the standpoint of depositors, many of which may be small businesses, they rely on access to their funds, to be able to pay the bills that they have, and they employ tens of thousands of people across the country. We've been hearing from those depositors and other concerned people this weekend," she told the network. "So let me say that I've been working all weekend with our banking regulators to design appropriate policies to address this situation. I can't really provide further details at this time. But what I do want to do is emphasize that the American banking system is really safe and well-capitalized, it's resilient."

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking,” Yellen replied when pressed about a bank bail out. “And the reforms that have been put in place means that we’re not going to do that again.”

Silicon Valley Bank collapse: Mark Warner argues 'best outcome will be an acquisition'

Ryan King

March 12, 01:51 PM March 12, 01:51 PM

Sen. Mark Warner (D-VA) argued that the best remedy for the Silicon Valley Bank collapse would be an acquisition.

Stopping short of ruling out support for a bailout, Warner underscored the importance of SVB depositors receiving their money back and emphasized the speed with which SVB's collapse came about.

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"The best outcome will be – can they find a buyer for this SVB bank today, before the markets open in Asia later in the day. That would be the best," Warner told ABC's This Week host Martha Raddatz.

Last Wednesday, SVB revealed that it sold off a trove of securities at a loss and moved to raise capital, which sparked panic from venture capital firms and catalyzed a run on the bank. By Friday, SVB collapsed and was taken over by federal regulators.

SVB was the 16th largest federally insured bank and the largest to plunge into turmoil since Washington Mutual crashed during the 2008 financial crisis. Warner, who sits on the Senate Committee on Banking, Housing, and Urban Affairs, noted the timeline of its demise.

"This bank bought long-term treasuries, interest rates went up, and they got caught in a bind. But what was different in your report made clear, $42 billion came out of this bank on one day — on Thursday. And frankly, some actors, I think, we're accelerating that run. To put in comparison, Washington Mutual during the crisis ... lost $16 billion dollars over 10 days," Warner stressed.

During the Trump administration, Warner was one of 17 Democrats who backed a mid-sized bank rollback in Dodd-Frank, a comprehensive banking regulation package passed in the aftermath of the 2008 financial crisis. Warner helped author the original Dodd-Frank bill.

"I do think these mid-sized banks needed some regulatory relief," Warned said.

Federal Deposit Insurance Corporation policy dictates that bank deposits are insured up to $250,000, but the vast majority of SVB's deposits were worth over $250,000. Regulators have reportedly been working to ensure that depositors who had over $250,000 stashed in SVB will get their money back.

"Shareholders and the bank are going to lose their money, let's be clear about that. But the depositors can be taken care of," Warner stressed. "There's generally been a feeling that the people responsible, the shareholders of the bank, ought to lose their money. Depositors have been a different circumstance."

Warner also emphasized the risks posed by SVB's collapse to working families.

"I know it's called Silicon Valley Bank, but the startups literally are all across the country, and they've got to pay their bills this week," Warner said. "If other regional banks, midsize banks, if people get nervous, they may start taking their money out of those banks and putting it into the large money center banks. We don't want further consolidation."