United States regulators have shut down a second bank after the collapse of the start-up lender, Silicon Valley Bank, on Friday spread fear about the stability of the wider banking industry.
The government closed Signature Bank, making it the third biggest U.S. bank collapse since the 2008 financial crisis.
– A key point to note
The government said it will ensure all depositors in the bank and Silicon Valley Bank, which was shut down on Friday, will be paid all their money.
Deposit insurance covers up to $250,000 of client money, and initial reports that deposits above that threshold may not be paid immediately or in full, raised fears the collapse may affect confidence in the financial system and could trigger a bigger crisis.
The U.S. Federal Reserve (the equivalent of the central bank), its Treasury department (finance ministry) and Federal Deposit Insurance Corporation announced in a joint statement on Sunday that all depositors will have access to all of their money starting March 13.
To respond to concerns about using government funds to address a crisis that is likely the outcome of poor management, the government said “no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
The government said its move was aimed at protecting consumers and the financial system “in light of market events, monitoring market trends, and collaborating closely with other state and federal regulators”.
– Learn more
President Joe Biden said on Sunday he would deliver remarks about the banking system on Monday. He vowed to hold those responsible for the “mess” accountable.
“I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe,” Mr. Biden said in a statement. “The solution also ensures that taxpayer dollars are not put at risk.”
He added: “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
The government will also set up an emergency lending programme to provide funding to eligible banks and ensure they are able to “meet the needs of all their depositors.”
SVB was shut down on Friday after it failed to raise money to meet depositors demand, and to plug a big loss it incurred from selling its assets. The bank came under pressure as higher interest rates made it harder for start-ups to raise money through private fundraising or share sales.
Signature was a commercial bank with private client offices in New York, Connecticut, California, Nevada and North Carolina, and had nine national business lines including commercial real estate and digital asset banking.
As of September, almost a quarter of its deposits came from the cryptocurrency sector, but the bank announced in December that it would shrink its crypto-related deposits by $8 billion.
The bank had $110.36 billion in assets and $88.59 in deposits at the end of last year, according to New York state’s Department of Financial Services.
– Why this matters
The fast-paced development in the U.S. financial system is already affecting the banking industry and financial markets around the world. It is likely to have implications for Nigeria.
Discover more from Pluboard
Subscribe to get the latest posts sent to your email.