Silicon Valley Bank Collapse: US, UK try to stem fall from SVP fiasco

NEW YORK — Governments in the US and UK took extraordinary steps to avert a potential banking crisis after the failure of California-based Silicon Valley Bank sparked fears of a wider upheaval.

US regulators worked all weekend to find a buyer for the bank, which has more than $200 billion in assets and caters to tech startups, venture capital firms and high-paying tech workers.

While the attempt appeared to have failed, officials assured all of the bank's customers that they would be able to access their money on Monday.

The guarantee comes as part of an expansive emergency loan program intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole.

Meanwhile, the Bank of England and the UK Treasury said Monday morning they had facilitated the sale of the London-based bank's subsidiary to HSBC, Europe's largest bank, ensuring the safety of deposits of 6.7 billion pounds ($8.1 billion).

Regulators in the US rushed to shut down Silicon Valley Bank on Friday as it endured a traditional bank run, in which depositors rush to withdraw their funds at once. It was the second largest bank failure in US history, after the 2008 failure of Washington Mutual.

In a sign of how quickly the financial hemorrhaging is happening, regulators announced that New York-based Signature Bank had also failed and was foreclosed on Sunday.

With more than $110 billion in assets, Signature Bank is the third largest bank failure in US history. Another beleaguered bank, First Republic Bank, announced on Sunday that it had strengthened its financial health by getting access to funding from the Fed and JPMorgan Chase.

The developments kept the market on edge as trading started on Monday. Asian and European markets fell but not dramatically, and US futures fell.

In an effort to shore up confidence in the banking system, the Treasury, Federal Reserve and FDIC said Sunday that all of Silicon Valley Bank's clients will be protected and able to access their money.

“This move will ensure that the US banking system continues to fulfill its vital role in protecting deposits and providing access to credit to households and businesses in a way that promotes strong and sustainable economic growth,” the agencies said in a joint statement.

Under the plan, depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the $250,000 insurance limit, will be able to access their money on Monday.

Britain also moved quickly, working over the weekend to arrange the sale of Silicon Valley Bank UK Ltd., the British arm of the California bank, for a nominal amount of one pound.

Although the bank is small, with less than 0.2% of UK bank deposits according to central bank statistics, it has a big role to play in financing the technology and biotech start-ups that the UK government relies on to fuel economic growth.

Jeremy Hunt, head of the UK government's Department of Finance, said some of the country's leading technology companies could be “culled”.

“When you have very young companies, very promising companies, they are also fragile,” Hunt told reporters, explaining why authorities moved so quickly. “They need to pay their staff and they're worried that at 8 this morning they might actually be unable to access their bank accounts.”

He stressed that there had never been a “systemic risk” to the UK banking system.

In the US, officials characterize their lending programs as similar to what central banks have done for decades: Lend freely into the banking system so customers can rest assured they can access their accounts whenever needed.

That would allow banks that need to raise cash to pay depositors to borrow that money from the Fed, instead of having to sell Treasuries and other securities to collect it.

Silicon Valley Bank began to slip into bankruptcy when it was forced to dispose of some of its Treasuries at a loss to fund the withdrawal of its customers. Under the Fed's new program, banks can post those securities as collateral and borrow from emergency facilities.

The Treasury Department has set aside $25 billion to offset losses. Fed officials said, however, that they did not expect to have to use the money, given that securities posted as collateral carry a very low risk of default.

Although Sunday's move marked the most extensive government intervention in the banking system since the 2008 financial crisis, it was relatively limited compared to what was done 15 years ago. The two failed banks themselves haven't been rescued, and taxpayer money hasn't been given to them.

President Joe Biden said Sunday night as he boarded Air Force One back to Washington that he would speak about the situation on Monday.

In a statement, Biden also said he was “firmly committed to holding fully accountable for this mess and continuing our efforts to strengthen greater bank oversight and regulation so we are not in this position again.”

Several top Silicon Valley executives fear that if Washington does not bail out the failing bank, customers will flee to other financial institutions in the coming days. Share prices have fallen over the past few days at other banks serving tech companies, including First Republic and PacWest Bank.

Among the bank's customers are companies from the California wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to fighting climate change.

Tiffany Dufu, founder and CEO of The Cru, a New York-based career coaching platform and community for women, posted a video Sunday on LinkedIn from an airport bathroom, saying the bank crisis was testing her resilience.

Given that his money is tied up in Silicon Valley Bank, he has to pay his employees from his private bank account. With the support of two teenagers who are going to college, he said he was relieved to hear the government's intention to make depositors intact.

“Small businesses and early-stage startups don't have a lot of access to leverage in situations like this, and we're often in a very vulnerable position, especially when we have to struggle to wire your bank account to start, especially for me, as black women founders,” Dufu said. ___ Rugaber and Megerian reporting from Washington. Sweet and Bussewitz reporting from New York. Associated Press writers Hope Yen in Washington, Jennifer McDermott in Providence, Rhode Island, and Danica Kirka in London contributed to this report.