Regulators Announce Plan To Ensure SVB Depositors

Banking regulators announced a plan Sunday to ensure depositors at Silicon Valley Bank.

The move may alleviate some fear that has hovered over the tech and venture industries the last two days after SVB — the dominant financial institution for much of the venture-backed startup world — was shut down by banking regulators on Friday morning following a dramatic decline in the company’s stock price and reports of a run on its deposits.

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However, banking regulators also announced Sunday they are shutting down a second bank with venture lending and crypto ties — New York-based Signature Bank — due to “systemic risk.” Depositors at the bank will have access to their funds.

Despite the Signature announcement, the news concerning SVB may ease some worries — at least temporarily.

The Federal Deposit Insurance Corp. said Sunday all insured depositors will have full access to their insured deposits no later than Monday morning, and the FDIC will pay uninsured depositors an advance dividend within the next week.

Uninsured depositors also will receive a receivership certificate for the remaining amount of their uninsured funds.

The Federal Bank announced that it will make financing available to eligible financial institutions through a new Bank Term Funding Program — offering loans of up to one year in length to banks, savings associations and credit unions pledging high quality collateral like U.S. Treasuries and mortgage-backed securities.

The U.S Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the program — although it is not expected to be used.

The joint statement by the Treasury, the Fed and the FDIC on Sunday afternoon said there would be no bailouts and no taxpayer costs with these new plans. It also said shareholders and some unsecured creditors are not protected.

The news came after Treasury Secretary Janet Yellen said on CBS’ “Face the Nation” Sunday  there would be no SVB bailout.

“We’re not going to do that again,” Yellen said. “But we are concerned about depositors and are focused on trying to meet their needs.”

The SVB failure is the second largest bank collapse in U.S. history. The  largest collapse of a financial institution was Washington Mutual, which fell in 2008.

On Saturday, accelerator giant Y Combinator unveiled a petition — with more than 5,000 CEOs and founders signatures — asking for regulators’ assistance in the SVB crisis.

Illustration: Dom Guzman

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