Silicon Valley Bank Shut Down By Regulators (Photo: Getty Images)
The US government took action on Sunday to prevent the potential fallout of Silicon Valley Bank’s bankruptcy last Friday, which could have led to a crisis of confidence in the financial system.
In a statement, the Federal Reserve, the Treasury Department, and regulatory bodies announced that they would make additional funds available to guarantee the payment of all the institution’s deposits, both insured and uninsured.
“After receiving a recommendation from the boards of the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) and consulting with President Joe Biden, Secretary Janet Yellen has approved measures that allow the FDIC to complete its management of the Silicon Valley Bank of Santa Clara, California, in a way that fully protects all deposits,” the statement said.
On Friday, SVB was placed in the hands of the FDIC after its clients withdrew more than $42 billion in just 10 hours on Thursday, the largest outflow of deposits from a bank in recent US history.
The big concern was what would happen to its deposits, which reached $175 billion on December 31: regulators guarantee funds up to $250,000, but 96% of deposits in the California bank exceeded that amount and were not insured. Much of that money belonged to technology sector companies, many of them startups, which needed the funds to meet their payments, including employee salaries.