In a joint statement, Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell and FDIC Chairman Martin Gruenberg said the Federal Deposit Insurance Corporation (FDIC) is going to ensure that all Silicon Valley Bank depositors are made whole after the bank collapsed on March 10 in the second-largest bank failure in U.S. history.
Similar action will be taken to address Signature Bank, which collapsed shortly after Silicon Valley Bank as many customers panicked and withdrew their deposits, the joint statement said.
"Today, we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system," the statement said. "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."
Following recommendations from the boards of the FDIC and the Federal Reserve, and consulting with the president, Yellen "approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors," according to the statement. "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. 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. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer."
Silicon Valley Bank, which was known for its friendliness to tech startups and venture capitalists, told its investors on March 8 that it had sold bonds at a loss and needed to raise $2.25 billion to fix its balance sheet, CNBC reported. By the end of the following day, depositors withdrew more than $42 billion. Some experts are blaming the bank run on panicked venture capitalists (VC), the network reported.
“This was a hysteria-induced bank run caused by VCs,” said fintech investor Ryan Falvey of Restive Ventures. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”
In their joint statement, Yellen, Powell and Gruenberg said that senior management of Silicon Valley Bank has been removed.
"The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry," the statement said. "Those reforms combined with today's actions demonstrate our commitment to take the necessary steps to ensure that depositors' savings remain safe."
It also noted that uninsured depositors, as well as shareholders, are not guaranteed to be "protected."
More than 95% of Silicon Valley Bank's deposits were uninsured as of December, CNBC reported, citing regulatory filings.
"Small businesses across the country that had accounts at Silicon Valley Bank and Signature Bank can breathe easier knowing they will be able to pay their workers," President Joe Biden said in a tweet. "It won't cost taxpayers a dime. This is paid for with the fees that banks pay into the Deposit Insurance Fund."
The FDIC insurance fund typically only covers deposits up to $250,000, but Silicon Valley Bank and Signature Bank depositors are all going to be covered, regardless of deposit size, Axios reported. Felix Salmon, author of Axios Markets, said that although the Biden administration is saying taxpayers won't be footing the bill, "Most taxpayers are also bank depositors, and some portion of their bank deposits is used to fund the FDIC, in what feels much like an involuntary tax being levied by a government agency." The FDIC insurance fund currently stands at approximately $125 billion.
In the panic following the collapse of Silicon Valley Bank, many Signature Bank customers pulled their deposits, leading regulators to shut the bank down on March 12, CBS reported.
Biden said in his tweet that he will urge lawmakers and regulators to prevent this situation from happening again.
"I will ask Congress and banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure happens again," he tweeted. "We must protect American jobs and small businesses."