SVB depositors will get all their money (feat. SBNY shutdown)

There’s no word yet on bidders for Silicon Valley Bank (or other parts of SVB Financial), but regulators have decided that depositors will be fine.

From the Federal Reserve, FDIC and Treasury on Sunday:

Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. 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.

After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors. Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.

Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

The notable points here are: the US is going to make whole all the depositors of Silicon Valley Bank, both insured and uninsured (ie amounts over $250,000). Regulators will not cover losses from “certain unsecured debtholders”, even though uninsured depositors are normally classified as [EDIT: senior unsecured] creditors**. ¯_ (ツ)_/¯ Point for [@]Jason, we guess. Shareholders will be zeroed out, we presume.

Same goes for the depositors of Signature Bank in New York, which has also shut down. Like Silvergate it had built part of its business on being friendly to crypto, but it had a substantial commercial real estate presence too.

US banks will need to chip in to shore up any shortfall in the Deposit Insurance Fund that may arise after the FDIC covers start-up and/or crypto deposits.

Well! Let’s hear from Twitter:

Banks will also get funding to “meet the needs of all their depositors”, presumably so companies won’t race to take their uninsured deposits out of their current favourite banks and put them into new banks.

The Fed published a separate statement providing more detail on that program. It’s called the Bank Term Funding Program, or BTFP (not to be confused with BTFD). With our emphasis:

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.

After receiving a recommendation from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, after consultation with the President, approved actions to enable the FDIC to complete its resolutions of Silicon Valley Bank and Signature Bank in a manner that fully protects all depositors, both insured and uninsured. These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy.

The Board is carefully monitoring developments in financial markets. The capital and liquidity positions of the U.S. banking system are strong and the U.S. financial system is resilient.

Depository institutions may obtain liquidity against a wide range of collateral through the discount window, which remains open and available. In addition, the discount window will apply the same margins used for the securities eligible for the BTFP, further increasing lendable value at the window.

No haircuts, no masters. And more important, no realised losses from rate increases!

Find the term sheet here.

US equity-market futures were up more than half of one per cent at pixel.

*We may update this post periodically with fresh news

**We also mixed up the uninsured depositors’ spot in the US cap structure and regret the error (thanks for the shout commenters)