ISLAMABAD/WASHINGTON: The Biden administration intervened on Sunday with a series of emergency measures to restore confidence in the American banking system after the Silicon Valley Bank (SIVB.O)’s failure threatened to trigger a broader systemic crisis.
After a dramatic weekend, US regulators said that the failed SIVB customers would have access to all their deposits starting Monday as regulators arranged a new facility to give US banks access to emergency funds.
The Federal Reserve also made it easier for US banks to borrow from the regulator in emergencies.
Regulators also moved quickly to close New York’s Signature Bank, which had recently been under pressure.
Banking regulators intervene
US President Joe Biden said on Sunday evening that the Treasury secretary and the National Economic Council director worked industriously with banking regulators to address the glitches at the two banks.
In a statement, Biden said that American citizens and businesses could have confidence that their bank deposits would be there when they needed them.
He said that he was firmly committed to holding those responsible for the mess fully accountable and continuing their efforts to strengthen oversight and regulation of larger banks so that they were not in that position again.
A quick sense of relief swept through Silicon Valley and global markets as soon as the regulators’ announcement came after US futures started trading in Asia. Investors sent the US S&P 500 stock futures up 1.2 per cent, while Nasdaq futures rose 1.3 per cent.
“We think the steps taken by the Federal Reserve, Treasury, and FDIC would decisively break the psychological ‘doom loop’ across the global banking sector,” said Karl Schamotta, Copra chief market strategist in Toronto. He said that, fairly or not, the episode would contribute to higher background volatility, with investors watching cautiously for other cracks to emerge as the Fed’s policy tightening continues.
The Biden administration’s intervention underscored how the Federal Reserve and other central banks’ relentless campaign to beat inflation was putting stress on the financial system and global markets.
Silicon Valley Bank (SVB), a backbone for the startup firms, was a product of the decades-long period of cheap money, with unique risks that made it especially vulnerable. But as a run on the bank ensued last week, worries that other regional banks shared similarities spread quickly.
With the Federal Reserve poised to continue raising interest rates, investors said the financial system might not be entirely out of the woods yet. The Federal Reserve will hold its next policy meeting on March 21-22.
