Customers of the Silicon Valley bank, along with investors and bankers around the world, are awaiting an announcement from US regulators on what will happen after the biggest bank failure since 2008.
The Federal Deposit Insurance Corporation (FDIC) said Friday that the SVB would reopen Monday morning, under the control of the newly created Deposit Insurance National Bank of Santa Clara. Once this is done, insured depositors who have up to $250,000 in their accounts will be able to access their money.
But most of the deposits at SVB were not insured, and it is unclear when those customers will be able to access their money – or whether they will be able to get it back. SVB’s role as a lead bank for start-ups and other venture-backed companies means that many firms may struggle to meet payroll and other obligations if their money is not recovered quickly. Is.
Many investors on Wall Street and Silicon Valley are expecting additional information to be announced at some point on Sunday. Here’s a look at some of the ways forward.
options for regulators
Treasury Secretary Janet Yellen said on Sunday that a bailout of SVB was out of the question, but regulators were exploring other options.
“We are concerned about depositors and are focused on trying to meet their needs,” Yellen said on CBS’ “Face the Nation.”
“It’s really a decision for the FDIC to decide what’s the best way to resolve this firm,” she said.
One possible option could be to use the FDIC’s Systemic Risk Exception Tool to backstop uninsured deposits in SVBs. Under the Dodd-Frank Act, that move would need to be made in conjunction with the Treasury Secretary and the Federal Reserve.
Additionally, Bloomberg News reported on Saturday that regulators were considering creating a special investment vehicle that would block uninsured deposits at other banks, which could prevent bank spreads in the coming weeks.
Another possibility is if another bank steps in to buy part or all of SVB. This happened during the financial crisis, in which JPMorgan Chase absorbed Washington Mutual in 2008. Bloomberg News reported on Sunday that the FDIC is running the auction process for the SVBs.
Sen. Mark Warner (D-Va.), a member of the Senate Committee on Banking, Housing and Human Affairs, said on ABC’s “This Week” that “the best outcome is a takeover of SVB.”
Historically, such acquisitions have often occurred over the weekend. After banks open on Monday, more depositors may withdraw their money, making selling more difficult.
FDIC asset sales
If there is no buyer for SVB or the new backstop created by regulators, the FDIC will sell SVB’s assets to raise cash that will be used to repay uninsured depositors.
SVB held billions of dollars in agency mortgage-backed securities. Those assets are highly liquid, and in theory can be sold quickly with little loss. Regulatory reforms since the 2008 financial crisis have also made mortgage-backed securities safer than non-denominated securities, contributing to financial stability issues.
The FDIC said Friday that uninsured depositors would receive a receipt certificate and advance dividend payments within one week.
Bloomberg News reported on Saturday night that between 30% and 50% of uninsured deposits could be returned as soon as Monday.
Other assets held by SVB include loans that are less liquid and may be more difficult to sell. That process can take several weeks or more and end with less than 100% reinstatement of uninsured deposits.
Some SVB customers, such as businesses, may be able to sell their deposit claims at a discount to other financial firms in order to raise funds more quickly than through the FDIC process.
impact on markets, other banks
Investors have warned that the failure of government regulators to announce a new plan to restore SVB’s deposits could lead to wider issues for other small and medium-sized banks as well as financial markets.
One worrying consequence would be for customers to take large amounts of money out of other banks and move them to the largest US banks that the government has defined as systemically important. Customers pulled more than $42 billion out of SVB on Thursday, and similar moves at other banks could put pressure on those firms, even if they have stronger balance sheets.
This fear may first appear in the financial markets. The US futures market opens at 6 PM ET, and many Asian markets open around that time.
The SVB failure has already had an impact on the broader markets. The S&P 500 declined 4.55% last week, while the regional bank’s shares fell 16% in their worst week since March 2020.