After the historic fall of Silicon Valley Bank, the U.S. government took extraordinary measures Sunday to avert a banking crisis, assuring depositors at the failed financial institution would have immediate access to all of their money.
The announcement was made just hours before trading started in Asia, amid worries that the conditions that led the Santa Clara, California-based bank to fail could spread.
The bank, which experienced the second-largest failure in history, was up for sale, and regulators had been looking for a buyer all weekend. As of Sunday, it looked like those attempts had failed.
The regulators’ announcement on Sunday that New York-based Signature Bank had failed and was being seized showed how swiftly the financial hemorrhaging occurred. Signature Bank was the third-largest bank failure in American history, with assets of more than $110 billion.
All Silicon Valley Bank customers would be safeguarded and have access to their funds, the Treasury Department, Federal Reserve, and FDIC declared on Sunday.
They also unveiled measures to protect the bank’s consumers and stop further robberies.
“This action will guarantee that the U.S. banking system continues to execute its critical functions of protecting deposits and providing access to credit to individuals and companies in a manner that fosters strong and sustainable economic growth,” the agencies stated in a joint statement.
On Friday, Silicon Valley Bank, a financial organization with over $200 billion in assets, faced a conventional run on the bank, in which depositors raced to take all their money at once. Authorities were forced to act quickly to liquidate the firm.
It is the second-largest bank failure in American history, trailing only Washington Mutual’s loss in 2008.
Some well-known Silicon Valley CEOs feared that if Washington didn’t save the failing bank, customers might start making runs on other financial institutions soon. Several banks that do business with technology businesses, such as First Republic Bank and PacWest Bank, have seen stock prices plummet in recent days.
Many wineries in California that rely on Silicon Valley Bank for loans and technological businesses working to battle climate change are among the bank’s clients.
When its clients, primarily technology companies in need of money as they battled to obtain financing, started withdrawing their deposits, Silicon Valley Bank began to go under. The bank had to sell bonds at a loss to pay for the withdrawals, which resulted in the most significant financial institution failure in the United States since the height of the financial crisis.
According to Treasury Secretary Janet Yellen, the main issue for Silicon Valley Bank is rising interest rates, which the Federal Reserve has raised to fight inflation. Bonds and other mortgage-backed securities are among its many assets.