According to a source familiar with the matter, financial regulators are debating two alternative strategies to handle the aftermath of Silicon Valley Bank’s liquidation if no buyer emerges.
The Federal Deposit Insurance Act’s jurisdiction to establish a backstop for Silicon Valley Bank’s uninsured deposits is one method the regulators could intervene, the individual said. The change would also affect the systemic risk exception, which enables the Fed to take exceptional measures to allay concerns about contagion.
A Backup Plan for SVB Depositors
Before they open on Monday and consumers can withdraw money from their accounts, similar regional banks and institutions may become more confident as a result of this action.
A “general banking facility” from the Federal Reserve would be an extra step that would help other financials with direct exposure to SVB so they wouldn’t have to fundamentally alter their operations or suffer significant losses.
- Regulators would establish a backstop for uninsured deposits at SVB utilizing power from the FDI Act.
- A similar action might inspire confidence at organizations like SVB.
- A “general banking facility” from the Federal Reserve, which would help other financials with direct exposure to SVB, would be a further step.
The actions probably wouldn’t be required until the FDIC was unsuccessful in finding a buyer for all of SVB, or at least a significant portion of it. According to Bloomberg News, the FDIC was launching an auction for the bank, with final bids being accepted until this Sunday.
The largest U.S. bank collapse since 2008 occurred on Friday when regulators shut down Silicon Valley Bank. On Thursday, a bank run resulted in the withdrawal of tens of millions of dollars in consumer deposits.
Investors have expressed fear that other mid-sized banks would experience comparable pressure in the absence of federal help.
Before taking any action, the Treasury will be presented with these ideas by the Fed and FDIC. No government bailout is being considered, Treasury Secretary Janet Yellen told CBS earlier on Sunday, although she added that the department was trying “to resolve the matter promptly.”
