Washington: In a step aimed at protecting the US economy by strengthening public confidence in the country’s banking system, the Biden administration has announced that depositors of the failed Silicon Valley Bank will have access to their money from Monday.
After receiving recommendations from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, and consulting with the president, Treasury Secretary Janet Yellen on Sunday approved actions enabling the FDIC to complete its resolution of the Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors, an official statement said.
California-based Silicon Valley Bank, the 16th largest bank in the United States, was closed on Friday by the California Department of Financial Protection and Innovation which later appointed the FDIC as its receiver.
SVB was deeply entrenched in the tech startup ecosystem and the default bank for many high-flying startups; its abrupt fall marked one of the largest bank failures since the 2008 global financial crisis.
The bank failed after clients -- many of them venture capital firms and VC-backed companies that the bank had cultivated over time -- began pulling out their deposits, creating a run on the bank (among the biggest US bank runs in more than a decade).
Bank runs occur when customers or investors gripped by panic start withdrawing their money, causing the bank to be incapable of paying its obligations as they come due.
“The depositors will have access to all their money starting Monday, that is, March 13. No losses associated with the resolution of the Silicon Valley Bank (SVB) will be borne by the taxpayer,” said a joint statement issued by the Department of the Treasury, Federal Reserve, and FDIC.
“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,” it said.
According to the interagency federal statement, shareholders and certain unsecured debt holders, however, will not be protected.
“The senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law,” it said.
Finally, the Federal Reserve Board had on Sunday announced it would make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors, it said.
"This step will ensure that the US 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 statement noted.
According to the statement issued by Yellen, Federal Reserve Board chair Jerome Powell and FDIC Chairman Martin Gruenberg, the United States 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.
“Those reforms combined with today’s action demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe,” it added.
The abrupt collapse of the SVB has left Silicon Valley entrepreneurs unnerved and jittery.
It has also pushed tech investors and startups to scramble to figure out their financial exposure and the impact on their ability to operate, at a time when many businesses were already on edge from widespread layoffs.
Seeking to ward off the impact on Indian enterprises, Minister of State for Electronics and IT Rajeev Chandrasekhar on Sunday that he will meet representatives of start-ups this week to assess the impact of their exposure to Silicon Valley Bank which was deeply entrenched in the tech startup ecosystem.
According to various industry players and experts, most Indian software-as-a-services startups with a presence in the US and firms linked to incubator Y Combinator are among entities that will feel the heat of the Silicon Valley Bank collapse but the impact is likely to be short-term.
"The SVB_Financial closure is certainly disrupting startups across the world. Startups are an imp part of New India Economy. I will meet with Indian Startups this week to understand the impact on them n how @narendramodi govt can help during this crisis," Chandrasekhar tweeted on Sunday.
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