The US government has reassured depositors that they will have quick access to all their money following the historic failure of Silicon Valley Bank.
Regulators had been working all weekend to find a buyer for the California-based bank – which has become the second largest bank failure in history – but efforts appeared fruitless on Sunday.
The failures prompted US President Joe Biden to urge US Congress and regulators to “tighten the rules” on banks.
However, the US Treasury Department says all deposits at SVB are safe as it has sought to reassure customers of America’s 16th largest bank as well as financial markets.
Meanwhile, Sky News reported on Monday that the The UK branch of SVB Bank is to be bought by HSBC Holdings. The Sale has been confirmed later on Monday morning.
The Chancellor says the sale will offer certainty to British customers, including tech companies, which the government was keen to protect from the bank’s demise.
But despite the UK’s HSBC deal and the US government’s efforts to reassure people about SVB, the financial hemorrhage has continued to spread.
New York-based Signature Bank has also failed and was found on Sunday with more than $110 billion in assets.
Asian markets were nervous as trading began on Monday.
Japan’s benchmark Nikkei 225 fell 1.6% in morning trade, while Australia’s S&P/ASX 200 lost 0.3%.
South Korea’s Kospi fell 0.4% but Hong Kong’s Hang Seng rose 1.4% and the Shanghai Composite rose 0.3%.
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‘Vital Roles’ protected
To inspire confidence in the banking system, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) said Sunday that all Silicon Valley Bank customers in the United States are protected and can access their money.
The US authorities also announced steps to protect the bank’s customers and prevent further bank runs.
“This move will ensure that the U.S. banking system continues to fulfill its important role in protecting deposits and providing access to credit for households and businesses in a way that supports strong and sustained economic growth,” the agencies said in a joint statement Explanation.
This means depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the $250,000 (£206,602) insurance limit, can access their funds today.
“More banks are likely to fail”
However, some experts warn that the US authorities’ move could trigger a banking crisis by encouraging bad investor behavior.
By guaranteeing that depositors don’t lose money, authorities are raising the issue of moral hazard – removing people’s incentive to protect themselves against financial risk.
“This is a bailout and a big shift in the way the US system was built and its incentives,” said Nicolas Veron, senior fellow at the Peterson Institute for International Economics in Washington.
“The costs are passed on to everyone who uses banking services. If all bank deposits are now insured, why do we need banks?”
However, others defended the strong action.
Billionaire hedge fund manager Bill Ackman tweeted that if the authorities hadn’t intervened, “first thing Monday we would have had a 1930’s bank run that would have caused tremendous economic damage and hardship to millions of people.”
He added: “Despite the intervention, more banks are likely to fail, but we now have a clear roadmap of how the government will manage them.”
Supporters of the deposit insurance measure say taxpayers were protected from funding the measures, unlike the bank bailouts during the 2008 financial crisis.
Elsewhere, another struggling bank, First Republic Bank, announced that it had boosted its financial health by gaining access to funding from the Fed and JPMorgan Chase.