The Fed, Treasury and FDIC announce measures to support banks after the collapse of Silicon Valley

In a joint statement from the US Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation, the government said:

Today, we are taking decisive action to protect the US economy while strengthening public confidence in the banking system. The move ensures the U.S. banking system continues to play its critical role in protecting deposits and providing access to credit to households and businesses that support strong and sustainable economic growth.

After receiving input from the FDIC and Federal Reserve Boards and consulting with the President, Secretary Yellen approved actions to allow the FDIC to complete the Silicon Valley Bank, Santa Clara, Calif., settlement in a way that fully protects all depositors. Depositors will be able to access all their money from Monday, March 13. No taxpayers will bear any costs associated with Silicon Valley Bank’s decision.

We also specifically disclose similar systemic risk exposure for Signature Bank, New York, New York, which was closed today by its state charter authority. All depositors of this institution will be complete. As with the Silicon Valley bank decision, the taxpayer will not suffer any losses.

Shareholders and certain unsecured creditors are not protected. Senior executives were also fired. Any loss incurred by the Deposit Guarantee Fund in order to support uninsured depositors will be recovered through a special assessment of the banks in accordance with the requirements of the law.

Finally, the Federal Reserve Board announced on Sunday that it will provide additional funds to eligible depository institutions to ensure that banks can meet the needs of all depositors.

The US banking system rests on a stable and solid foundation thanks to reforms implemented after the financial crisis that have provided better protection to the banking sector. These reforms, combined with today’s actions, demonstrate our commitment to taking the necessary measures to ensure the preservation of depositors’ savings.

The Federal Reserve added:

To support U.S. businesses and households, the Federal Reserve Board announced Sunday that it will provide additional funds to eligible deposit-taking institutions to help banks better meet the needs of all depositors. This action will strengthen the banking system’s ability to protect deposits and ensure a continuous supply of money and credit to the economy.

The Federal Reserve is prepared to deal with any liquidity pressures that may arise.

The funding will be made available through the creation of a new Bank Term Funding Program (BTFP) that provides loans of up to one year to banks, savings associations, credit unions and other eligible deposits backed by US Treasury bills, agency debt and mortgage-backed securities. and securing other eligible assets. These assets are valued at nominal value. BTFP will be an additional source of liquidity against high-quality securities, eliminating the need for an institution to quickly sell these securities during a crisis.

With the approval of the Treasury Secretary, the Treasury Department will provide up to $25 billion from the Exchange Stabilization Fund as a safety net for the BTFP. The Federal Reserve doesn’t think it’s necessary to dip into these support funds.

After receiving input from the Federal Deposit Insurance Corporation (FDIC) and the Board of Directors of the Federal Reserve System, Treasury Secretary Yellen, in consultation with the President, approved measures to allow the FDIC to enforce its ruling on the Silicon Valley bank. method that protects all depositors, insured and uninsured. These measures will reduce stress on the entire financial system, support financial stability and minimize any impact on businesses, households, taxpayers and the wider economy.

The Board closely monitors developments in the financial market. The capital and liquidity position of the US banking system is strong and the US financial system is stable.

Depository institutions can obtain liquidity across a wide range of collateral through the discount window, which remains open and accessible. In addition, the discount window applies margins used for BTFP-enabled securities, further increasing the credit value of this window.

The Council will closely monitor the situation in the financial system and is ready to use its full range of tools to support households and businesses and take additional measures if necessary.