- US banking regulators have approved a plan to safeguard depositors with funds in Silicon Valley Bank and Signature Bank.
- Depositors in both banks will have full access to their deposits starting Monday.
- The Federal Reserve is creating a Bank Term Funding Program to provide loans to safeguard institutions affected by the market instability caused by the SVB failure.
US banking regulators have approved a plan to protect depositors who have funds in Silicon Valley Bank (SVB) and Signature Bank in New York. Both banks were at risk of systemic contagion, which led to concerns about depositors’ safety. From Monday, depositors with funds in both banks will have complete access to their deposits, as the Treasury Department designated SVB and Signature as systemic risks. This designation gave the Treasury Department the authority to unwind both banks in a way that provides full protection to depositors.
To safeguard institutions affected by the market instability caused by the SVB failure, the Federal Reserve is creating a Bank Term Funding Program that offers loans for up to one year. These loans come with favorable terms and securities valued at par value. The new plans aim to bolster the banking system’s capacity to safeguard deposits, ensure the ongoing provision of money and credit to the economy, and restore public confidence in the banking system.
It’s important to note that there will be no bailouts or taxpayer costs associated with any of the new plans. Shareholders and some unsecured creditors will not be protected and will lose all their investments. To backstop any potential losses from the funding program, the Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund. Although markets have reacted positively to these developments, some economists express concerns that there is no guarantee that this will work.