SVB: U.S. authorities launch emergency measures to enhance banking system

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* As British Government wades in to save SVB UK

The United states has launched emergency measures designed to shore up confidence in the banking system after the failure of Silicon Valley Bank (SIVB.O) threatened to trigger a broader financial crisis.

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After a dramatic weekend, regulators said the failed bank’s customers will have access to all their deposits starting Monday and set up a new facility to give banks access to emergency funds.

SVB was a commercial bank headquartered in Santa Clara, California. It was the 16th-largest bank in the United States

The Federal Reserve also made it easier for banks to borrow from it in emergencies.

While the measures provided some relief for Silicon Valley firms and global markets on Monday, worries about broader banking risks remain and have cast doubts over whether the Fed will stick with its plan for aggressive interest rate hikes.

“We think the steps taken by the Fed, Treasury and (the Federal Deposit Insurance Corp) will decisively break the psychological ‘doom loop’ across the regional banking sector,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

Regulators also moved swiftly to close New York’s Signature Bank , which had come under pressure in recent days.

The wider efforts to avert a crisis lifted Wall Street stock futures in Asian trade on Monday, helping broader markets.

Lingering concerns about the financial sector weighed on bank shares in Asia, with Japan’s Mitsubishi UFJ (8306.T) hitting a two-month low and Singapore’s DBS (DBSM.SI) a four-month low. Hong Kong shares of HSBC and Standard Chartered pared early losses to trade near-flat.

European stock markets fell 0.6% in early trade (.STOXX), while banking stocks fell just over 1%. U.S. stock futures were higher. Asian shares outside Japan climbed over 1% (.MIAPJ0000PUS) while the blue-chip Nikkei (.N225) tumbled 1%.

The Biden administration’s intervention underscores how a relentless campaign by the Fed and other major central banks to beat back inflation is putting stress in the financial system and global markets.

Silicon Valley Bank (SVB), a mainstay for the startup economy, was a product of the decades-long era of cheap money, with unique risks that made it especially vulnerable. But as a run on the bank ensued last week, worries that other regional banks shared similarities spread quickly.

The collapse of SVB – the largest bank failure since 2008 – sparked concerns over whether small-business clients would be able to pay their staff, with the FDIC only protecting deposits of up to $250,000.

Some 89% of SVB’s $175 billion in deposits were uninsured as of the end of 2022, according to the FDIC.

All depositors, including those whose funds exceed the maximum government-insured level, will be made whole, according to a joint statement by U.S. Treasury Secretary Janet Yellen,

Fed Chair Jerome Powell and Federal Deposit Insurance Corp Chair Martin Gruenberg on Sunday evening.

A senior U.S. Treasury official said the actions taken would protect depositors, while providing additional support to the broader banking system, but officials and regulators were continuing to monitor financial system stability.

“The firms are not being bailed out. The depositors are being protected,” the official said.

The risk would be borne by the Deposit Insurance Fund, which has sufficient funds to do so.

Providing the systemic risk exceptions was deemed quicker than waiting for a possible buyer, the official said.

The British government and Bank of England have held talks to find a solution that would avert Silicon Valley Bank’s subsidiary in the UK from failing.

This comes just as another British Bank,   HSBC (HSBA.L) announced it was buying Silicon Valley Bank UK for 1 pound ($1.21).

It said the subsidiary had loans of around 5.5 billion pounds and deposits of around 6.7 billion pounds as of March 10.

While SVB UK is small – HSBC’s balance sheet exceeds $2.9 trillion .

There are concerns that SVB’s failure would cause Britain’s start-up industry to seize up.

This had prompted calls from the sector for government to intervene.

British start-ups backed by venture capital have around 2.5 billion pounds, largely in deposits in SVB UK, according to a weekend survey by an industry body.

Reuters/Hauwa Abu

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