Regulators approved plans Sunday to backstop both depositors and financial institutions associated with Silicon Valley Bank.
Officials will unwind both SVB and Signature Bank, ensuring that depositors will have full access to their funds on Monday.
The Federal Reserve stepped in with a separate facility that will provide loans up to one year for institutions impacted by the bank failures.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” leading regulators said in a joint statement.
Banking regulators devised a plan Sunday to backstop depositors with money at Silicon Valley Bank
a critical step in stemming a feared systemic panic brought on by the collapse of tech-focused institution.
Depositors at both failed SVB and Signature Bank
in New York, which was shuttered Sunday over similar systemic contagion fears, will have full access to their deposits as part of multiple moves that officials approved over the weekend. Signature had been a popular funding source for cryptocurrency companies.
Those with money at the bank will have full access starting Monday.
The Treasury Department designated both SVB and Signature as systemic risks, giving it authority to unwind both institutions in a way that it said “fully protects all depositors.” The FDIC’s deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 guarantee on deposits.
Along with that move, the Federal Reserve also said it is creating a new Bank Term Funding Program aimed at safeguarding institutions impacted by the market instability of the SVB failure.
A joint statement from the various regulators involved said there would be no bailouts and no taxpayer costs associated with any of the new plans. Shareholders and some unsecured creditors will not be protected and will lose all of their investments.
“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” said a joint statement from Fed Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg.
The Fed facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions. Those taking advantage of the facility will be asked to pledge high-quality collateral such as Treasurys, agency debt and mortgage-backed securities.
“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a statement. “The Federal Reserve is prepared to address any liquidity pressures that may arise.”
The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for any potential losses from the funding program. A senior Fed official said the Treasury program likely won’t be needed and will exist as a safeguard.
The same official expressed confidence the various moves would shore up confidence in the financial system, providing funding guarantees and liquidity considered essential during financial crises.
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