NEW YORK (AP) — The US government took extraordinary steps Sunday to stop a possible banking crisis after the historic failure of Silicon Valley Bank, assuring depositors of the failed financial institution that they would be able to access all their money quickly.
The announcement came amid fears that the factors that caused the Bank based in Santa Clara, California on failure it could be extended, and only hours before trading in Asia began. Regulators had worked all weekend to find a buyer for the bank, which was the second-biggest bank failure in history. Those efforts appeared to have failed until Sunday.
In a sign of how fast the financial hemorrhaging was occurring, regulators announced that New York-based Signature Bank had failed and was being seized on Sunday. With more than $110 billion in assets, Signature Bank is the third largest bank failure in US history.
The Treasury Department, the Federal Reserve and the FDIC said Sunday that all Silicon Valley Bank customers will be protected and have access to their funds and announced measures designed to protect the bank’s customers and prevent further bank runs.
“This step will ensure that the US banking system continues to perform its vital functions of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.
Regulators had to rush to shut down Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds in one fell swoop. It is the second largest bank failure in US history, behind only the 2008 Washington Mutual bankruptcy.
Some prominent Silicon Valley executives feared that if Washington did not bail out the failed bank, customers would make runs on other financial institutions in the days to come. Share prices have tumbled in recent days in other banks that serve technology companies, including First Republic Bank and PacWest Bank.
The bank’s clients include a variety of companies in the California wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups dedicated to combating climate change.
Silicon Valley Bank began to slide into insolvency as its clients, mostly tech companies in need of cash as they struggled to obtain financing, began withdrawing their deposits. The bank had to sell loss-making bonds to cover withdrawals, triggering the biggest failure of a US financial institution since the height of the financial crisis.
Treasury Secretary Janet Yellen described the rise in interest rates, which has been increased by the Federal Reserve to fight inflation, as the central problem of Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates rose.