The Feds Come to the Rescue of Two US Banks

By the close of last week, the demise of Silicon Valley Bank had left numerous investors feeling uneasy about how the upcoming weekend would unfold. However, today brought yet another setback, with the announcement that Signature Bank of New York would also be shutting down. Consequently, the Treasury Department, along with the Federal Reserve and FDIC, collaborated to devise an emergency program to provide a safeguard for deposits.

The contents of a letter explained that these entities would intervene to ensure the security of deposits. In a joint statement, the Department of Treasury, Federal Reserve, and FDIC have now disclosed the following:

The following statement was released by Secretary of the Treasury Janet L. Yellen, Federal Reserve Board Chair Jerome H. Powell, and FDIC Chairman Martin J. Gruenberg:

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. 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.

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, California, in a manner that fully protects all depositors. 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.

Shareholders and certain unsecured debtholders will not be protected. 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.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

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. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.

Based on the statement provided, it seems that depositors of both banks will be fully safeguarded and empowered to access their funds on Monday, without any imposition of losses upon taxpayers. As of now, it doesn't seem like a bailout will be necessary.

Furthermore, eligible depository institutions will receive additional funding from the Federal Reserve Board to ensure that they can cater to the needs of all their depositors.

To elaborate, it appears that the FDIC will cover deposits that are over $250k for those deposits at both banks. Moreover, the Federal Reserve is instituting a new Bank Term Funding Program (BTFP), which will furnish banks and other depository institutions with loans up to a year in length.