On Sunday, the federal government announced the collapse of a second bank with strong ties to the tech industry – as regulators rushed to attempt to stem the losses caused by the collapse of Silicon Valley Bank last week.
Manhattan-based Signature Bank – a key financial institution for the cryptocurrency industry – has shut down because of a “similar systemic risk exception,” based on a joint statement by the heads of the U.S. Treasury, Federal Reserve, and Federal Deposit Insurance Corporation.
Officials said Silicon and Signature depositors could be healed, but bank shareholders and unsecured debtors wouldn’t be protected.
The Federal Reserve has said it should create a latest Bank Term Funding Program to supply depository institutions loans for up to at least one 12 months, backed by U.S. Treasury securities and other assets to assist banks.
The Feds said the steps they took “will be sure that the US banking system continues to meet its critical roles of protecting deposits and providing access to credit for households and businesses in a way that promotes strong and sustainable economic growth.”
California-based Silicon Valley had $209 billion in assets when it collapsed on Friday, while Signature Bank had greater than $110 billion.
Silicon was the second largest bank to fail in US history, after Washington Mutual in 2008. Signature was the third largest.
President Biden on Sunday praised the feds for locating a “quick fix” that “ensures taxpayer dollars should not put in danger.”
“Americans and American firms can rest assured that their bank deposits will probably be there once they need them,” Biden said.
But hedge fund Thomas Hayes of Great Hill Capital told The Post: “Just two days were enough to see regional banks crash to do the right thing.”
The tech insider added: “The regulators screwed it up badly allowing it to occur, however it was the best solution to prevent contagion.”
A banking source in San Francisco called the development “good for depositors, however it’s more regulation – and it brings us closer to nationalizing banking.”
Meanwhile, Signature bank executives are calling wealthy clients begging them to remain and telling them “your money is secure here”, a source told The Post.
“I used to be able to drop every little thing, now I’m reconsidering. There isn’t any promise that anywhere else is safer,” the source said. “I’ll still be pulling out some money… we shouldn’t even be having this conversation.”
The federal government’s extraordinary motion got here hours after Treasury Secretary Janet Yellen publicly said the government wouldn’t bail out Silicon Valley Bank, a darling of climate change-focused tech startups in addition to California vineyards.
Appearing on CBS’s “Face the Nation,” Yellen opposed the government’s bailout of the country’s Sixteenth-largest bank, because it did with tons of of institutions in 2008 in the subprime mortgage crash.
“During the financial crisis, there have been investors and owners of huge systemic banks who were bailed out,” Yellen said. “And the reforms which have been made mean we’re not going to do this again.”
Yellen also stressed that officials “care about depositors and are focused on trying to satisfy their needs.”
“I have been working with our banking regulators all weekend to provide you with the right policy to handle this example,” Yellen said. “I cannot provide further details presently.”
Yellen’s later statement with Fed Chairman Jerome Power and FDIC Chairman Martin Gruenberg said taxpayers wouldn’t must cover any of the banks’ losses, an obvious reference to the bank’s Term Funding program.
Customers were widely expected to make Monday morning at Silicon Valley Bank and potentially many more.
Senior Fox Business correspondent Charlie Gasparino tweeted Sunday afternoon that “major financial players” had told the White House that they “expect significant bank runs and large market turbulence on Monday, precluding an answer to the collapse of SVB.”
“Businesses are aware that their short-term bank deposits are in danger because of @FDICgovlimits. They’re preparing to drag money out of Mon’s mid-sized financial institutions, bank executives say,” he wrote.
Earlier, Posta columnist Gasparino tweeted that depositors “were told they might receive 30% to 50% of their money on Monday,” citing bankers aware of the situation.
Gasparino added that bank customers will get “most of the rest over time if there is no such thing as a solution i.e. full coverage or @FDICgov sale.”
Hedge fund billionaire Bill Ackman of Pershing Square Capital Management also raised the specter of a large economic meltdown in a chaotic 649-word tweet Saturday morning, warning that the government has “about 48 hours to correct a mistake that may soon be irreversible.” “
Absent @jpmorgan@citi or @BankofAmerica taking up SVB before opening on Monday, a prospect I consider unlikely, or a government guaranteeing all deposits, the gigantic choke sound you will hear will probably be the withdrawal of essentially all uninsured deposits from all but “necessary banks” system” (SIB)” – wrote the activist-investor.
“These withdrawals will drain liquidity from local, regional and other banks and start to destroy these necessary institutions.”
During an appearance on Fox & Friends, Gasparino called the collapse of Silicon Valley Bank “a warning sign of how screwed up our banking system and our economy are.
“I mean, we’ll rewind the video here a bit.” You recognize, we have had years of the Federal Reserve printing money. Far an excessive amount of,” he said. “Whilst we were recovering from the pandemic, the Biden administration was spending loads of money. You recognize, you do this stuff, you mess with the economy like this… you are going to have some, some things occur.
Additional reporting by Jesse O’Neill and Post wires