The risk of contagion of the crisis in the banks was high

The US government defended its actions before the fall Silicon Valley Bank and Signature Bankwhich prevented the spread of the banking crisis to other subjects, since the “risk of contagion” was very high.

That’s what he assured President of the Federal Deposit Insurance Corporation (FDIC), Martin Gruenbergbefore the Senate Banking Committee, in a special appearance called as a result of the collapse of two banks two weeks ago.

“I think the evidence points to that from back-to-back failures there was a significant risk of contamination to other institutions. And in fact, during that weekend, we saw serious stress in other institutions (…) I think there would have been an infection and I think we would be in a worse situation today,” he said.

This is how Gruenberg answered the question Democratic Senator Sherrod Brown about what the effect would have been on small banks and small businesses across the country if regulators hadn’t taken action to protect deposits.

last March 12United States regulators launched a plan to protect Silicon Valley Bank (SVB) and Signature Bank deposits after their collapse.

He Department of the Treasury, the Federal Reserve (FED) and the Federal Deposit Insurance Corporation (FDIC) announced that clients will have access to their money deposited in these entities.

The Fed also launched a liquidity line for banks with financing difficulties with the aim that mistrust does not spread to other subjects and that what happened does not lead to a deeper financial crisis.

According to Gruenberg data, the FDIC estimates that the costs of saving SVB amounted to 20,000 million dollars and that of Signature Bank was 2,500 million.

“I would like to emphasize that these estimates are subject to significant uncertainty and are likely to change, depending on the final value received from each receivership,” said Gruenberg, who recalled that regulators are conducting a “deep investigation” into what happenedwhose conclusions will be presented in the coming weeks.

At the speech, Gruenberg was accompanied by the Vice President of the Board of Directors of the FED, Michael S. Barr, who stated that these banks failed because “their management failed to adequately address clear interest rate risk and clear liquidity risk”.

When asked by Democratic Senator Tina Smith whether the regulator was monitoring the risks to banks from continued interest rate hikes, Barr insisted that it was “The banking system is solid and resilient.”