After SVB fallout, FDIC will have to be 'ready to open up the pocketbook' - analyst

Record ID: 1715055

  • Title: After SVB fallout, FDIC will have to be 'ready to open up the pocketbook' - analyst
  • Date: 12th March 2023
  • Summary: PALM BEACH, FLORIDA, UNITED STATES (MARCH 12, 2023) (REUTERS) VARIOUS EXTERIORS OF FIRST REPUBLIC BANK WASHINGTON, D.C., UNITED STATES (MARCH 12, 2023) (REUTERS) (SOUNDBITE)(English) GERARD COMIZIO, ASSOCIATE DIRECTOR AND PROFESSOR AT AMERICAN UNIVERSITY WASHINGTON COLLEGE OF LAW, SAYING: [WHAT CAUSED THE SVB FALLOUT?] "And there are a lot of red flags here that that's cer
  • Embargoed: 27th March 2023 00:52
  • Keywords: Biden Silicon Valley FDIC Federal Reserve Janet Yellen SVB SVB fallout Silicon Valley Bank Treasury Department regional banks signature bank tech industry
  • Location: VARIOUS IN UNITED STATES
  • City: VARIOUS IN UNITED STATES
  • Country: US
  • Topics: Economic Events,North America
  • Reuters ID: LVA004671912032023RP1
  • Aspect Ratio: 16:9
  • Story Text: The move will not lead to losses by American taxpayers and all depositors, including those whose funds exceed the maximum government-insured level, will be made whole, according to a joint statement by U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corp Chair Martin Gruenberg on Sunday (March 12) evening.
    The moves reassured financial markets, sending stock indexes up in early Asia trading, but left questions unanswered about buyers for the banks, and left equity and bondholders of the two failed institutions with steep losses.
    The officials said that depositors of New York's Signature Bank, which was closed Sunday (March 12) by the New York state financial regulator, would also be made whole at no loss to the taxpayer.
    Signature, like SVB, had a clientele concentrated in the tech sector, and the securities on its balance sheet had eroded as interest rates rose. As of September, almost a quarter of Signature’s deposits came from the cryptocurrency sector, but the bank announced in December that it would shrink its crypto-related deposits by $8 billion.
    New policies adopted Sunday will "wipe out" equity and bondholders in SVB and Signature Bank of New York while protecting all customers' deposits, a senior U.S. Treasury official said.
    The official said the steps were taken to stabilize the financial system and protect depositors, and did not constitute a bailout of either firm. No losses of either bank will be borne by U.S. taxpayers, the official said.
    Yellen had said she was working with banking regulators to respond after SVB became the largest bank to fail since the 2008 financial crisis.
    Gerard Comizio, a professor at American University Washington College of Law, told Reuters that the FDIC is 'going to have to be ready to open up the pocketbook'. He added that there will be 'blowback' from this fallout.
    "The idea that you had two bank failures, including one that is the second largest bank failure in history, there's going to be some blowback from this and I fully expect that there'll be congressional hearings on these failures, both of them," Professor Comizio said referring to the SVB fallout and the crypto-friendly bank Silvergate that recently shut down.
    Paul Orlando, the director of the USC Marshall School of Business Incubator Program and the founder of Startups Unplugged, encouraged startups to stay positive.
    "You have to just get through this month, you know, what can you do to either like cut costs... if you are in a situation where your employees can go without, you know, being paid for a month... I think you will survive this," Orlando said.
    A senior U.S. Treasury official said the actions taken Sunday (March 12) would protect depositors, while providing additional support to the broader banking system, but officials and regulators were continuing to monitor the health and stability of the financial system.
    The Fed said it would make additional funding available through a new Bank Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.
    In March 2020 when the coronavirus pandemic and lockdowns triggered financial panic, the Federal Reserve announced a series of measures to keep credit flowing by lowering borrowing costs and lengthening the terms of its direct loans.
    By the end of that month, use of the Fed's discount window facility shot up to more than $50 billion.
    Through the middle of last week, before SVB's collapse, there had been no indications of usage picking up, with Fed data showing weekly outstanding balances of $4 billion to $5 billion since the start of the year.
    (Production: Greg Savoy, Nathan Frandino, Colette Luke, Deborah Gembara)
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