Governments in the U.K. and U.S. took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, even as another major bank was shut down.
The U.K. Treasury and the Bank of England announced early Monday that they had facilitated the sale of Silicon Valley Bank UK to HSBC, Europe's biggest bank, ensuring the security of 6.7 billion pounds ($11.1 billion Cdn) of deposits.
British officials worked throughout the weekend to find a buyer for the U.K. subsidiary of the California-based bank. Its collapse was the second-largest bank failure in history.
U.S. regulators also worked all weekend to try to find a buyer. Those efforts appeared to have failed Sunday, but U.S. officials assured all depositors that they could access all their money quickly.
The announcement came amid fears that the factors that caused the Santa Clara, Calif.-based bank to fail could spread.
In a sign of how fast the financial bleeding was occurring, regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday. At more than $110 billion US ($151.3 billion Cdn) in assets, Signature Bank is the third-largest bank failure in U.S. history.
The near-financial crisis left Asian markets jittery as trading began Monday. Japan's benchmark Nikkei 225 sank 1.6 per cent in morning trading, Australia's S&P/ASX 200 lost 0.3 per cent and South Korea's Kospi shed 0.4 per cent. But Hong Kong's Hang Seng rose 1.4 per cent and the Shanghai Composite increased 0.3 per cent.
U.S. reassures failed bank clients they are protected
In an effort to shore up confidence in the banking system, the Treasury Department, Federal Reserve and FDIC said Sunday that all Silicon Valley Bank clients would be protected and able to access their money. They also announced steps that are intended to protect the bank's customers and prevent additional bank runs.
"This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner 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 US insurance limit, will be able to access their money on Monday.
WATCH | Bank failure causes jitters in tech, banking:
In Canada, the top banking regular also announced Sunday it is taking "temporary control" of the assets of Silicon Valley Bank's Canadian branch.
Also Sunday, another beleaguered bank, First Republic Bank, announced that it had bolstered its financial health by gaining access to funding from the Federal Reserve and JPMorgan Chase.
The Treasury has set aside $25 billion US to offset any losses incurred under the Fed's emergency lending facility. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.
Analysts said the Fed's program should be enough to calm financial markets.
"Monday will surely be a stressful day for many in the regional banking sector, but today's action dramatically reduces the risk of further contagion," economists at Jefferies, an investment bank, said in a research note.
Though Sunday's steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, its actions are relatively limited compared to what was done 15 years ago. The two failed banks themselves have not been rescued, and taxpayer money has not been provided to the banks.
U.S. President Joe Biden said Sunday evening that he would speak about the bank situation on Monday. In a statement, Biden also said he was "firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again."
2nd-largest bank failure in U.S. history
Regulators had to rush to close Silicon Valley Bank, a financial institution with more than $200 billion US in assets, on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.
Some prominent Silicon Valley executives feared that if Washington didn't rescue the failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.
Among the bank's customers are a range of companies from California's wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to combating 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 resiliency. Given that her money was tied up at Silicon Valley Bank, she had to pay her employees out of her personal bank account. With two teenagers to support who will be heading to college, she said she was relieved to hear that the government's intent is to make depositors whole.
"Small businesses and early-stage startups don't have a lot of access to leverage in a situation like this, and we're often in a very vulnerable position, particularly when we have to fight so hard to get the wires into your bank account to begin with, particularly for me, as a Black female founder," Dufu told The Associated Press.
U.S. 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 Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.
