Sunday , May 19 2024

US banking system is safe: Biden


WASHINGTON: US authorities have taken emergency measures to shore up the banking system after a string of bank failures raised concerns about financial stability.

The government has taken over Silicon Valley Bank and Signature Bank, saying it will guarantee all deposits.

The moves aim to stop the rush of customer withdrawals that hit SVB last week from spreading.

President Joe Biden said Americans should “rest assured that our banking system is safe”.

People and businesses who have money deposited with SVB would be able to access all their cash from Monday, he said.

He said the banks’ leaders would be fired.

SVB – which specialized in lending to technology companies was shut down by regulators who seized its assets on Friday. It was the largest failure of a US bank since the financial crisis in 2008.

A statement from the US Treasury, the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) said depositors would be fully protected. The taxpayer will not bear any losses from the move, which will be funded by fees regulators charge to banks, it said.

SVB was scrambling to raise money to plug a loss from the sale of assets affected by higher interest rates.

“The US banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry,” the authorities’ joint statement said.

“Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

Those actions also apply to Signature Bank of New York, seen as the most vulnerable institution after SVB, which came under regulatory control on Sunday.

As part of their moves to restore confidence, regulators also unveiled a new way to give banks access to emergency funds.

The Federal Reserve said it would offer assistance through a new Bank Term Funding Program, making it easier for banks to borrow from it in a crisis.

SVB was seen as a crucial lender for early-stage businesses in the tech sector. It was the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on stock markets last year.

Elsewhere, authorities in Canada took temporary control of the assets of SVB’s branch in the country. The top banking regulator said it intended to seek permanent control.

SVB started as a California bank in 1983 and expanded rapidly over the last decade but it came under pressure as higher interest rates made it harder for start-ups to raise money through private fundraising or share sales.

In Silicon Valley, the reverberations from the collapse have been widespread as companies face questions about what it means for their finances.

Paul Ashworth, chief North America economist at Capital Economics, said the US authorities had “acted aggressively to prevent a contagion developing”.

“Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age but contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work,” he added.

Meanwhile, HSBC has bought the UK arm of SVB. (Int’l Monitoring Desk)

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