Regulators Say Silicon Valley Bank Depositors Will Be Covered

Federal regulators have thrown Silicon Valley Bank (SVB) customers a lifeline.

Officials from the Federal Reserve, Federal Deposit Insurance Corporation and the U.S. Treasury announced Sunday (March 12) that depositors at the recently-collapsed bank will have access to their funds beginning Monday (Mar. 13).

The regulators also said they had commissioned actions to protect deposits and stave off a larger banking crisis stemming from the historic failure of SVB.

SVB was shuttered last week after a run on its deposits, leading to the second-largest bank failure in U.S. history and rising concerns about broader contagion to the financial system that had regulators scrambling all weekend.

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

Also covered are depositors at Signature Bank, which was closed by regulators Sunday, citing “systemic risk.” In the case of both banks, the regulators said, “no losses will be borne by the taxpayer.”

In addition, the Federal Reserve says it will make additional funding available to “eligible depository institutions” to make sure banks can meet their depositors’ needs.

That’s happening via the creation of a new Bank Term Funding Program (BTFP), “offering loans of up to one year in length to banks, savings associations, credit unions and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.”

Regulators on Sunday also held an auction of SVB’s assets, though it was not clear if that effort found a buyer. A report by CNBC said that PNC Bank initially expressed interest in a purchase before withdrawing its offer after conducting due diligence.

Earlier Sunday, Treasury Secretary Janet Yellen said the government had no plans to bail out SVB the way the U.S. did to banks during the 2008 financial crisis.

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place means we are not going to do that again,” Yellen said. “But we are concerned about depositors and are focused on trying to meet their needs.”

A senior treasury official quoted by Reuters Sunday said the government was not bailing out banks, but rather protecting depositors.

PYMNTS noted Sunday that the collapse of SVB was having an impact beyond the U.S. This weekend saw the Bank of England (BoE) place Silicon Valley Bank UK Limited — the U.S. institution obtained a U.K. banking license in 2012 — into an insolvency procedure to lessen damage from the collapse and protect U.K. companies from major losses.

In a statement on its website, the BoE explained that a bank insolvency procedure would allow eligible depositors to quickly recover up to £85,000 (about $102,600) in compensation from the country’s Financial Services Compensation Scheme or up to £170,000 (about $205,000) for joint accounts.

England’s central bank added that SVB UK, “has a limited presence in the U.K. and no critical functions supporting the financial system. In the interim, the firm will stop making payments or accepting deposits.”