The repercussions of the announcement of the collapse of the Silicon Valley Bank in the United States continue to dominate the interest of the American and global banking sector, amid growing concern that the collapse of the bank will have a domino effect on other banks in the United States.
On Monday morning, all eyes are on Silicon Valley Bank and its 17 branches spread in California and Massachusetts, at a time when the Federal Deposit Insurance Corporation called "FDIC" (FDIC) depositors to withdraw their financial deposits.
The federal government guarantees through that institution deposits of no more than $250,000 only. As a bank that primarily provides services to companies, approximately 97% of the bank’s deposits amounting to $200 billion are uninsured because their value exceeds $250,000, and they mainly belong to companies, according to Al Jazeera Net.
Last Wednesday, the bank surprised investors by announcing that it needed to raise $2.25 billion to support its balance sheet, and that after selling all its available bonds, it lost $1.8 billion. The assurances of the bank’s executives were not enough to stop the rush of depositors to withdraw deposits worth $42 billion by the end of last Thursday, and the bank’s share lost more than 60% of its value.
Informed sources told Reuters that the US authorities are in the process of taking action "substantial actions" today to support deposits at Silicon Valley Bank (SVB) and prevent the widening repercussions of its sudden collapse.
The sources said that US President Joe Biden’s administration officials worked at the beginning of this week to assess the repercussions of the bank’s collapse on Friday, with a special focus on the emerging project financing sector and multi-branch banks.
One of the sources said, according to Reuters, that the Federal Reserve (the US central bank) succeeded in taking measures that kept banks operating during the Covid-19 pandemic, and that it could take similar measures now.
The Washington Post quoted 3 well-informed sources as saying that the US authorities are considering protecting all uninsured deposits in SVB, as well as intervening to prevent what they fear will be panic in the US financial system.
The report stated that officials at the Treasury Department, the US Central Bank and the Federal Deposit Insurance Corporation discussed this idea at the beginning of this week. CNBC also reported that the US Central Bank and the Federal Deposit Insurance Corporation are studying two different mechanisms to manage the repercussions of closing SVB if a buyer is not found for the bank.
The collapse of SVB had repercussions around the world, as the British government scrambled to limit any fallout from the closure of the bank’s UK unit, and concerns arose in countries such as Israel and India, where technology companies depend on the bank.
Earlier in the day, US Treasury Secretary Janet Yellen said she was working with banking sector regulators to address the collapse of Silicon Valley Bank, the biggest bank to collapse after the 2008 global financial crisis.
Yellen told CBS News "We want to ensure that the problems facing any of the banks do not pass on to other banks"Air hostess: "During the financial crisis, investors and owners of big banks were bailed out…and the reforms that were implemented mean we won’t do that again".
Invitation to take over the bank
Many voices from within the tech sector and banking have increasingly called on the federal government to push another bank to take over Silicon Valley to protect uninsured deposits.
They expressed fears that failure to manage the crisis in protecting deposits of more than $250,000 may result in a loss of confidence in other medium-sized banks.
Many are worried that they will not be able to pay salaries this month, which in turn could lead to a wave of failures and layoffs in the technology industry.
Investors are concerned that these failures may reduce confidence in the banking sector, especially medium-sized banks with deposits of less than $250 billion.
Investor David Sachs called on the federal government to push another bank to buy the assets of Silicon Valley Bank, and Sachs – who previously managed a number of technology companies – tweeted. "Where is (US Federal Reserve Chairman Jerome) Powell? Where’s (Treasury Secretary Janet) Yellen? Stop this crisis now. They have to announce that all deposits will be safe, and one of the big four banks must take over Silicon Valley Bank before they start operating on Monday morning, or there will be contagion and the crisis will spread".
The government is the solution
The opinions of the Washington political community were divided on the need for the federal government to intervene or not to prevent the bank’s collapse.
Republican Senator and former presidential candidate Mitt Romney tweeted, calling for the intervention of the federal government to save the bank. "Silicon Valley bank shareholders and executives lose everything, however, and good faith depositors must redeem their deposits in order to pay their workers, pay the cost of their orders, and prevent the spread of contagion.".
By contrast, Rep. Matt Gaetz of Florida opposed any government bailout, he said "If there is an effort to use taxpayers’ money to bail out a Silicon Valley bank, the American people can count on the fact that I will be there leading the fight against it.".
