(C) Common Dreams
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Regulators Close Another Bank and Move to Protect Deposits [1]
['Jeanna Smialek', 'Alan Rappeport']
Date: 2023-03-12
That reality sent tremors through the banking industry over the weekend. Officials and economists worried that people with uninsured accounts at other regional banks might begin to fear for the safety of their own deposits — which could prompt them to pull their money out and move it to bigger banks in a hunt for safety. That, some warned, could turn what might otherwise be a one-off bank failure into a full-blown financial crisis.
For example, Signature, like Silicon Valley Bank, had a big share of large and uninsured deposits — the kind that onlookers worried about. It had experienced heavy outflows of deposits on Friday, a person familiar with the matter said, though by Sunday the situation appeared to have stabilized.
Fear of contagion and the speed of the unfolding problems prompted the dramatic Sunday night announcement. The government had scrambled to try and sell Silicon Valley Bank to a private company and finding a purchaser is still a possibility. But a Treasury official said Sunday that regulators ultimately decided to move forward with the plan to make depositors whole, in part because it was proving to be challenging for a potential buyer to vet the bank’s books by Monday.
The Treasury official emphasized that the actions should not be considered to be a “bailout,” because the company’s shareholders and those who own its debt would be wiped out.
The aggressive actions to save the failed bank’s depositors from pain and to prop up the banking sector as a whole demonstrated that officials had become worried that the cracks that surfaced at Silicon Valley Bank earlier this week — ones that tied back to a recent and rapid rise in interest rates as the Fed fights inflation — could morph into a systemwide crisis if not halted.
The F.D.I.C. is usually supposed to clean up a failed bank in the cheapest way possible, but regulators agreed that the situation posed a risk to the financial system, which allowed them to invoke an exception to that rule. The regulator will tap the Deposit Insurance Fund, which comes from fees paid by the banking industry, to make sure it can pay back depositors.
The agencies said that “any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
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[1] Url:
https://www.nytimes.com/2023/03/12/business/janet-yellen-silicon-valley-bank.html
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