SVB failed after customers began withdrawing their deposits, causing a run on the bank. (File)
Washington:
In a move aimed at protecting the US economy by bolstering public confidence in the nation’s banking system, the Biden administration announced that depositors at a failed Silicon Valley bank will have access to their money starting Monday.
After receiving recommendations from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve System and consulting with the president, Treasury Secretary Janet Yellen on Sunday told the FDIC in an official statement that Silicon Valley Bank, Santa Clara, California will fully protect all depositors.
California-based Silicon Valley Bank, the 16th largest bank in the United States, was shut down on Friday by the California Department of Financial Protection and Innovation, which later appointed the FDIC as its receiver.
SVB is deeply embedded in the tech startup ecosystem and the default bank for many high-flying startups; its collapse was one of the biggest bank failures since the 2008 global financial crisis.
The bank failed after clients (many of whom were venture capital firms and VC-backed companies the bank over time) began to pull deposits and create turnover in the bank (among the largest banks in the US for more than a decade).
Bank failure occurs when panicked customers or investors begin to withdraw their money, causing the bank to be unable to pay its obligations when they come due.
“Depositors will be able to access all their money from Monday, March 13. No costs associated with the decision of Silicon Valley Bank (SVB) will be borne by the taxpayer,” said the joint statement of the department. the Treasury, the Federal Reserve, and the FDIC.
“We are also announcing the removal of such systemic risk for Signature Bank, New York, New York, which was closed today by its state charter. All depositors of this institution will be fully insured,” the statement said.
Shareholders and certain unsecured debt holders are not protected, according to the federal interagency statement.
“Senior management has also been removed. In order to support uninsured depositors, the loss to the Deposit Guarantee Fund will be compensated by conducting a special assessment of banks in accordance with the law,” the report said.
Finally, the Federal Reserve Board announced on Sunday that it will provide additional funding to eligible depository institutions to ensure that banks are able to meet the needs of all depositors.
“This step will ensure that the U.S. banking system fulfills its critical roles of protecting deposits and providing access to credit to households and businesses in a way that promotes strong and sustainable economic growth,” the statement said.
According to the statement made by Yellen, Federal Reserve Board Chairman Jerome Powell and FDIC Chairman Martin Gruenberg, the banking system of the United States remains on a stable and solid foundation, which was improved mainly due to the reforms made after the financial crisis and guarantees for the banking industry.
“These reforms, combined with today’s actions, show that we intend to take the necessary measures to ensure the preservation of depositors’ savings,” he added.
The sudden collapse of SVB has alarmed and angered Silicon Valley entrepreneurs.
It’s also left tech investors and startups scrambling to figure out their financial health and the impact on their ability to operate, while many businesses have been sidelined by mass layoffs.
Seeking to avoid the impact on Indian businesses, Minister of State for Electronics and IT Rajeev Chandrasekhar said on Sunday that he would meet representatives of startups this week to assess the impact of their exposure to the tech-heavy Silicon Valley bank. startup ecosystem.
According to various industry players and experts, most US-based Indian software-as-a-service startups and firms associated with the incubator Y Combinator are among the organizations that will feel the bank’s collapse in Silicon Valley, but it could have an impact. short stay.
“Closing of SVB_Financial will certainly disrupt startups around the world. Startups are an important part of NewIndia’s economy. I will be meeting Indian startups this week to see how @narendramodi govt can help them in this crisis,” Rajeev Chandrasekhar wrote. on Sunday.
(Except for the headline, this story was not edited by NDTV staff and was published on a syndicated channel.)
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