How the US Government is Moving to Stop a Potential Banking Crisis

The government did something special on Sunday to try and prevent a potential banking crisis. This was due to Silicon Valley Bank falling apart. The government told everyone who had money in the bank that they can get their money back quickly and safely. On top of this, another big bank was closed as well.

The news came out while people were worried that the same reasons behind why a bank in Santa Clara, CA failed could also affect other banks. The government worked really hard over the weekend trying to find someone else who can buy the bank but it looks like unfortunately nothing happened on Sunday. This is now the second biggest bank failure in history.

This Sunday, the government declared that Signature Bank, a bank based in New York, has gone bankrupt. This is really bad news because it is one of the biggest banks in America with over $110 billion worth of assets. In fact, this is the third largest bank failure ever recorded in U.S history.

When U.S. regulators had to try and stop a near financial disaster, markets in Asia were very anxious as trading began on Monday. Japan’s Nikkei 225 weakened by 1.6%, Australia’s S&P/ASX 200 fell 0.3% and South Korea’s Kospi went down 0.4%. But Hong Kong’s Hang Seng improved by 1.4% and the Shanghai Composite got stronger by 0.3%.

The Treasury Department, Federal Reserve, and FDIC announced on Sunday that all Silicon Valley Bank customers would get protection for their money and be able to access it. They also said there will be extra safety measures put in place so that no more “bank runs” can happen.

A group of agencies has announced a plan that helps keep the U.S. banking system working right, which will help protect deposits and give people and businesses enough access to credit so that our economy can stay strong and grow. People who have money in Silicon Valley Bank or Signature Bank will be able to get their funds starting Monday, even if they have more than $250,000 there.

On Sunday, First Republic Bank said it has become stronger financially because now they can get money from the Federal Reserve and JPMorgan Chase.

The Fed made a special announcement last Sunday which included an emergency program that could stop a massive number of bank withdrawals happening at the same time. This type of program has been used in the past by central banks with the goal of reassuring customers that their money is safe and accessible when needed.

Banks that don’t have enough money to pay customers back the money they withdrew can borrow cash from the Fed instead of selling bonds. Silicon Valley Bank didn’t have enough money and had to sell its bonds at a loss. However, with the emergency facility set up by the Fed, banks will be able to use their securities as collateral to take out a loan.

The government has allocated $25 billion to help if they lose money through the emergency loan from the Federal Reserve. The Fed said that it should not be necessary since the securities used as collateral are very unlikely to fail. Analysts think that this action taken by the Fed should make people feel more secure about their financial status on Monday.

Monday could be a difficult day for people who work in banks, but the action taken today will make it less likely for the situation to get worse. That’s what experts from Jefferies (an investment bank) said in their report.

The government did a lot on Sunday to help the banking system, but it was nothing compared to what happened in 2008. In this case, the two banks were not saved and no taxpayer money was given away to them.

On Sunday evening, President Biden said he would make an announcement about the banking industry on Monday. He also made it clear that he will never let anyone involved in this mess get away with their bad deeds and wants to make sure banks are properly kept in check from now on.

Regulators had to quickly shut down Silicon Valley Bank on Friday because of a huge amount of people trying to take out their money. It was one of the biggest bank failures in United States history, only second to Washington Mutual in 2008.

Some important people in Silicon Valley were worried that if the bank didn’t get help from the government, customers would soon start taking their money out of other banks. This caused the prices of stocks at those banks to go down, such as First Republic Bank and PacWest Bank.

Silicon Valley Bank has lots of customers from California’s wine industry, including wineries that need loans. It also helps technology startups fighting climate change. For example, Sunrun sells and leases solar energy systems, and had less than $80 million in cash deposited with the Bank. Stitchfix, a clothing website, recently announced it had a credit line of up to $100 million with Silicon Valley Bank and other lenders.

Tiffany Dufu, the founder and chief executive of The Cru which aims to help women with their career paths, has recently uploaded a video on LinkedIn while standing in an airport bathroom. She mentioned that the sudden bank crisis really tested her ability to stay resilient as it kept her own money stuck at Silicon Valley Bank. As she has two kids going to college, Tiffany was relieved to hear from the government that it will do its best to make sure depositors like herself get back everything they deposited.

Small businesses and startups don’t have much power in tough times, especially when founders (like me, a Black female founder) are already working so hard to get money into their bank accounts. As Dufu told the Associated Press, this makes us feel very vulnerable.

Silicon Valley Bank was struggling to stay afloat when their customers, mostly tech companies who were having trouble raising money, decided to take their money out of the bank. To make up for it, the bank had to sell some bonds at a discount which ended up causing the biggest financial institution failure in America since the time of the economic crisis.

Janet Yellen, the Treasury Secretary, said that Silicon Valley Bank has a problem because of the interest rates going up. The Federal Reserve made it go up to fight high prices. So many things that the bank owned like bonds and mortgages went down in price when interests kept getting higher.

Sheila Bair, who was Chairwoman of the FDIC during the 2008 financial crisis, remembers that in most cases when a bank failed back then, it would be bought by a healthy bank. Also, usually this new bank would take on debts that had not been insured so they could gain many customers with lots of money in their accounts.

Silicon Valley Bank had a problem where they got really busy really quickly with no time to tell people. So they’re trying to do that now and catch up. People from Washington, New York, Providence and DC all worked together to help make this easier for Silicon Valley Bank.