TAMPA, Fla. (WFLA) — Just days after multiple banks collapsed across the United States, President Joe Biden spoke to Americans Monday, telling them there would be no bailouts, but that the U.S. banking system was “safe.”
Two Silicon Valley banks saw their fortunes crumble. A third in New York followed.
While the federal government will be stepping in to ensure customers don’t lose their money, the Federal Deposit Insurance Corporation won’t insure portions of it.
The FDIC reported that customers at two banks will have up to $250,000 per depositor insured, as is the federal policy. The funds used to insure the accounts are typically paid as fees by the banks themselves.
One bank, Silvergate, had its financial health tied into cryptocurrency companies and firms such as FTX. CNBC reported the crypto-focused bank had shut down its business and was liquidating assets after its “stock plunged more than 36% in after-hours trading” on March 8.
Silicon Valley Bank was closed Friday, following concerns about its solvency. The bank, a lender to multiple companies in the technology industry, was shut down by regulators and put into receivership. Now, the FDIC is handling the bank’s insured depositors.
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” the FDIC said in a statement.
Similar action was taken regarding Signature Bank in New York City, which closed on Sunday. The FDIC, Secretary of the Treasury, and the Federal Reserve confirmed that the depositors there would “be made whole.”
Another bank, First Republic, is also potentially in jeopardy. According to a statement released by the bank, it has partnered with JPMorgan Chase & Co. and the Federal Reserve to “access additional liquidity” in a step to fund operations.
On Sunday, the Federal Reserve Board announced more funding would be made available to ensure banks are able to meet the needs of their depositors, using a Bank Term Funding Program and loaning money to banks for a year, using various financial assets as collateral. $25 billion has been greenlit for use in the BTFP as a “backstop” from the Exchange Stabilization Fund.
“Investors in the banks will not be protected. They knowingly took a risk and when the risk didn’t pay off, investors lose their money,” Biden said Monday morning. “That’s how capitalism works.”
As the fiscal upheaval unfolds, and its impacts on the economic health of the U.S. and global economies are determined, the FDIC is taking over the banks, and in some cases moving control of them to others.
For the protected insured depositors from Silicon Valley Bank, “the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB). At the time of closing, the FDIC as receiver immediately transferred to the DINB all insured deposits of Silicon Valley Bank.” Silicon Valley Bank, N.A., a bridge bank, will open Monday for borrowers and depositors to access their accounts, according to FDIC.
For Signature Bank in New York, all of its deposited assets and funds will move to Signature Bridge Bank, N.A., to be run by the FDIC while marketing the now-shuttered Signature Bank to potential bidders.
Records from the Florida Retirement System’s 13F-HR form show the state pension fund owns close to 63,000 shares of SVB Financial Group, worth roughly $14.4 million. In November, the state had just over 65,000 shares, with February’s 13F submission showing a decrease of about 3.7% of shares held in the company.
According to reporting by NBC News, Silicon Valley Bank’s collapse is the second largest on record, citing the FDIC and saying SVB’s collapse is the largest since 2008’s Washington Mutual failure, when the Great Recession was in swing after Lehman Brothers’ fell, nearly taking the global financial system with it.
An Associated Press report cited Treasury Secretary Janet Yellen’s comments that rising interest rates pushed by the Federal Reserve were one of the issues for SVB’s collapse.
“Treasury Secretary Janet Yellen pointed to rising interest rates, which have been increased by the Federal Reserve to combat inflation, as the core problem for Silicon Valley Ban,” the AP reported. “Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.”
Yellen also spoke to NBC reports on “Meet the Press,” saying that the banking problem in California was “a liquidity failure, it was a bank run, so they didn’t have time to prepare to market the bank. So they’re having to do that now, and playing catch-up.”
FDIC exists to protect the national financial system by insuring deposits and supervising financial institutions in the U.S. It was established by U.S. Congress in 1933, following bank failures during the Great Depression.
Programs and funds used by the FDIC come from the premiums that banks and savings associations pay to it for insurance coverage, rather than getting money from Congress. Now that multiple banks are having significant financial issues, including as a result of bank runs, the FDIC is stepping in as part of an effort to prevent a system-wide collapse.
A bank run is when a large group of depositors withdraw their funds from a bank in a short amount of time, typically due to fears that their deposits would not be able to be withdrawn amid financial performance issues.
Federal officials and the president have said American taxpayers will not be in a position where they have to foot the bills for the institutions in jeopardy.
This can apply to businesses and everyday Americans, to ensure if a bank fails they don’t lose their money. FDIC coverage protects several types of accounts and finances, such as:
- checking accounts
- savings accounts
- cashier’s checks
- money orders
- negotiable order of withdrawal accounts
- certificates of deposit
- money market deposit accounts
The FDIC does not protect investment or mutual funds, nor does it insure annuities, securities, or life insurance policies.
When banks fail and close, FDIC is the government entity that pays the insurance depositors, as well as takes control of the failed bank. The standard insurance coverage for depositors by the FDIC protects $250,000 per depositor, per bank, for each account ownership category.
However, the moves by the federal government will also protect the uninsured deposits at both SVB and Signature, at least temporarily.
For those with bank accounts, coverage is automatic if they have an account at an FDIC-insured bank or institution. The protection applies to everyday Americans, as well as various entities, and even non-residents. As long as the money is in an FDIC-insured bank, the insurance applies, up to the amount covered.