The fear of Monday: How the US authorities want to prevent bank collapse Silicon Valley Bank collapse has made investors and banks tremble

Do not panic! After the collapse of the Silicon Valley bank in California, US regulators tried to prevent a chain reaction this weekend. “We want to make sure that the problems that exist in one bank don’t spread to other healthy banks,” Treasury Secretary Janet Yellen said in a televised interview broadcast on Sunday.

The solution presented late on Sunday: First, the Signature Bank, another specialized medium-sized bank, was closed by the regulators. The financial institution, which specializes in the cryptocurrency business and manages deposits of about $89 billion (as of the end of 2022), was already in the crosshairs of speculators on Friday; on the NASDAQ, shares lost nearly 23 percent.

Second, and perhaps more importantly, the boards collectively decided to retroactively classify Silicon Valley Bank and Signature Bank as systemically important. This move allows the quasi-government deposit insurance company FDIC to become responsible for all bank deposits.

By lifting the generally applicable FDIC upper limit of, simply put, $250,000 per customer, regulators hope to prevent a panic reaction on Monday. The unusual measure was jointly announced by Treasury Secretary Yellen, Federal Reserve Chairman Jerome Powell and FDIC Chairman Martin Gruenberg.

The technology industry is facing a liquidity crisis

Silicon Valley Bank collapsed Friday as the institution, popular with California startups and the wine industry, accumulated book losses and ran out of cash. Surprisingly quickly, regulators intervened, placing the bank in receivership and establishing a new institution, the Deposit Insurance National Bank of Santa Clara.

At the beginning of the week, observers expected panic reactions if the successor institution opened its doors, but the newly founded bank would not be allowed to pay more than $ 250,000 per customer. Scenarios circulated in which technology companies would find themselves in a liquidity crisis and would no longer be able to pay wages.

There was already speculation that the crisis would spill over to other highly specialized regional banks that could be sucked into the maelstrom of Silicon Valley. The name Signature Bank, which was also said to be very popular with lawyers, came up again and again. With the establishment of a follow-up institution, which bears the name Signature Bridge Bank, this effect must now be avoided.

It is unclear whether the troubled investors and customers of ailing banks can be calmed down. Further steps may be necessary. On Sunday there were direct cash injections for threatened institutions of rival companies; the search for a buyer for the remains of the Silicon Valley Bank, which managed deposits of about $195 billion at the end of 2022, was initially unsuccessful.

Meanwhile, the supervisory authorities stressed that the solution found would not cost taxpayers any money and thus would not be a repeat of the “bailouts” during the financial crisis 15 years ago. The FDIC is funded through more than 5,000 member banks. (aargauerzeitung.ch)