Bank regulators of the failed Silicon Valley bank tried to stop their customers from withdrawing their deposits right away. The same happened with the Signature Bank, New York, which closed last week.
After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary [of Treasury] Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors.Joint statement by the Federal Reserve, FDIC and the Department of Treasury
Seeing the rising panic among the public, the US government had to step in and confirm that all customers get their deposits by Monday. It was further confirmed that the losses incurred by the bank would not reflect on the customer’s deposit.
The Fall of SVB
The incident happened last week when the Silicon Valley Bank collapsed, and the FDIC had to take over the reins. Despite selling assets worth $21 billion and desperately trying to raise additional funds, the bank was stuck with a massive loan of $1.8 billion.
Adding to the losses, the investor lost trust in SVB, making its shares go down by 60%.
However, the sad part is they tried to make the customer bear the losses. As soon as the news of the collapse spread, customers and investors were naturally worried about their money. But every time they tried to withdraw their funds online, the system went down.
But thanks to the FDIC that came to their rescue, the organization set up a brand new bank that insures deposits up to $250000. This move helped a lot of customers get 100% of their deposits back. But the problem still persisted for those who had deposited more than $250000.
Twitter was flooded with concerns from these customers. After all, the bank didn’t only manage personal savings but also the prime financial hub for many companies who then feared how they’d run payroll or other business operations without the money.
A temporary relief
In the joint statement, the US financial authorities further added that the Federal Reserve Board would provide funds to these failed financial institutions so that they could return their customer’s deposits. Moreover, the authorities have also asked the bank employees to stay on the job for the next 45 days to manage the crisis.
This isn’t just a generous move but in fact the responsibility of a central bank to provide aid to the secondary banks when needed. After all, the central bank does hold a part of its funds for crises just like these.
In addition, if the banks still need more funds, these Federal financial organizations are willing to offer them a loan for up to one year against valuable collateral such as agency debt or mortgage-backed securities.
While these steps will certainly secure the customers’ future, the bank’s future remains bleak. After this massive crisis, most customers are likely to close their accounts once they get their money back. The bank will probably be sold— good news for the rivals and an opportunity for them to expand.
