US marshalling ‘material action’ to stem SVB fallout: report

Synopsis Details of the announcement expected on Sunday were not immediately available, but one of the sources said the Federal Reserve could take action similar to what it did to keep banks operating during the COVID-19 pandemic. Reuters US authorities were preparing “material action” on Sunday to shore up deposits in Silicon Valley Bank (SVB) and try to stem any broader financial fallout from its sudden collapse, sources familiar with the matter told Reuters. Biden administration officials worked through the weekend to assess the impact of startup-focused lender SVB Financial Group’s Friday failure, with a particular eye on the venture capital sector and regional banks, the sources said.

Details of the announcement expected on Sunday were not immediately available, but one of the sources said the Federal Reserve could take action similar to what it did to keep banks operating during the COVID-19 pandemic. “This will be a material action, not just words,” one said. Earlier, US Treasury Secretary Janet Yellen said that she was working with banking regulators to respond after SVB became the largest bank to fail since the 2008 financial crisis.

As fears deepened of a broader fallout across the US regional banking sector and beyond, Yellen said she was working to protect depositors but ruled out a bailout. Discover the stories of your interest Blockchain 5 Stories Cyber-safety 7 Stories Fintech 9 Stories E-comm 9 Stories ML 8 Stories Edtech 6 Stories “We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen told CBS’ “Face the Nation” show. “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 added.

In March 2020 when the coronavirus pandemic and lockdowns triggered financial panic, the US Federal Reserve announced a series of measures to keep credit flowing by lowering borrowing costs and lengthening the terms of its direct loans. By the end of that month, use of the Fed’s so-called discount window facility shot up to more than $50 billion. Through the middle of last week, before SVB’s collapse, there had been no indications of usage picking up, with Fed data showing weekly outstanding balances of $4 billion to $5 billion since the start of the year.

Finding a buyer Although the Federal Deposit Insurance Corporation (FDIC) protects deposits of up to $250,000, there are worries about SVB deposits above this, one source said, adding that many smaller businesses were at risk of being unable to pay staff. And US officials are also keeping close watch amid increased withdrawals from other regional banks. More than 3,500 CEOs and founders representing some 220,000 workers have signed a petition started by Y Combinator appealing directly to Yellen and others to backstop depositors, warning that more than 100,000 jobs could be at risk.

The FDIC, which was appointed SVB’s receiver, was trying to find another bank willing to merge with it, people familiar with the matter said on Friday. But with $209 billion in assets, Santa Clara, California-based SVB was the 16th largest US bank, and some industry executives said such a deal would likely require regulators to give special guarantees and make other allowances. US House of Representatives Speaker Kevin McCarthy told Fox News’ Sunday Morning Futures program that President Joe Biden’s administration and the US Federal Reserve were working to come up with announcement before markets open on Monday.

The Fed and FDIC did not respond to requests for comment. Community banks Some analysts and prominent investors warned that without a resolution by Monday, other banks could come under pressure. The FDIC kicked off an auction process late on Saturday, Bloomberg reported, citing people familiar with the matter, with final bids due by Sunday afternoon.

The report added that the FDIC was rushing to sell SVB assets and make a portion of its uninsured deposits available as soon as Monday. “The good news is it is unlikely an SVB-style bankruptcy will extend to the large banks,” risk and financial advisory firm Kroll said in a research note. But small community banks could face issues and the risk is “much higher if uninsured depositors of SVB aren’t made whole,” Kroll added.

Billionaire hedge fund manager Bill Ackman said in a tweet on Saturday that failure to protect all depositors could lead to the withdrawal of uninsured deposits from other institutions. “These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions,” Ackman, who said he does not have direct SVB exposure, warned. Shockwaves from SVB’s collapse were evident in the S&P 500 regional banks index which dropped 4.

3% on Friday to end the week down 18%, its worst week since 2009. Signature Bank dropped about 23%, while San Francisco-based First Republic Bank fell 15%. Western Alliance Bancorp dropped 21% and PacWest Bancorp slid 38%.

Charles Schwab fell more than 11%. Signature Bank, First Republic Bank, PacWest Bank and Charles Schwab did not immediately respond to requests for comment. Western Alliance Bank declined to comment.

Some banks could look to preemptively raise capital to fortify their balance sheets or try to strike deals of their own, industry executives said. When IndyMac and Washington Mutual collapsed in 2008, the FDIC found other firms to take on the assets and keep deposits intact. If no buyer is found for SVB, uninsured depositors will probably be left with a portion of whatever funds the FDIC can raise selling off the bank’s assets.

Global dominoes In Britain, where SVB has a local subsidiary, finance minister Jeremy Hunt said on Sunday he was working with Prime Minister Rishi Sunak and the Bank of England to “avoid or minimise damage” resulting from the chaos. “We will bring forward very soon plans to make sure people are able to meet their cash flow requirements to pay their staff,” Hunt told Sky News. More than 250 British tech firm executives signed a letter calling for state intervention, a copy seen by Reuters shows.

Advisory firm Rothschild & Co is exploring options for Silicon Valley Bank UK Limited, two people familiar with the talks told Reuters on Saturday. The BoE has said it is seeking a court order to place the UK arm into an insolvency procedure. Don’t miss out on ET Prime stories! Get your daily dose of business updates on WhatsApp.

click here! Sunday, 12 Mar, 2023 Experience Your Economic Times Newspaper, The Digital Way! Read Complete Print Edition » Front Page Pure Politics Bottom Line Deep Dive More Investors, Fintech Cos Help Out Cash-crunched Startups Top venture investors as well as larger fintech firms such as Razorpay are among those stepping up to provide emergency services to small and mid-stage startups roiled by the abrupt closure of industry lender Silicon Valley Bank in the US on Friday. India, Oz likely to Wrap Up $100-B Trade Pact by Dec India and Australia pledged to conclude a comprehensive trade deal by the end of 2023, eyeing $100 billion in bilateral commerce that will seek to deepen engagement in areas such as critical minerals. Direct Tax Mopup Surges 22.

6% India has collected ₹16. 68 lakh crore in gross direct tax till March 10 in the ongoing fiscal year, a rise of 22. 6% over the year-ago period, shows data released on Saturday.

Net of refunds, the collection was ₹13. 73 lakh crore, 16. 8% higher.

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