The US government has assured depositors they will be able to quickly access all their money after the historic failure of Silicon Valley Bank.
Regulators worked all weekend to try to find a buyer for the California-based bank – which became the second-largest bank failure in history – but efforts on Sunday appeared to be unsuccessful.
The US Treasury says all SVB deposits are safe, however, 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 division of SVB Bank will be acquired by HSBC Holdings. THE the sale has been confirmed later Monday morning.
The chancellor says the sale will provide security for UK customers, including tech firms that the government was keen to protect against the bank’s demise.
But despite the deal with HSBC in the UK and moves by the US government to reassure people about SVB, the financial haemorrhage has continued to spread.
New York-based Signature Bank also went bankrupt and was seized with more than $110bn (£90.8bn) in assets on Sunday, becoming the third-largest bank failure in US history.
Asian markets were nervous when trading began on Monday.
Japan’s benchmark Nikkei 225 index fell 1.6% in morning trading, while Australia’s S&P/ASX 200 index lost 0.3%.
South Korea’s Kospi fell 0.4%, but Hong Kong’s Hang Seng was up 1.4% and the Shanghai Composite was up 0.3%.
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‘Vital roles’ protected
In an effort to instill confidence in the banking system, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) said on Sunday that all Silicon Valley Bank customers in the US would be protected and have access to their money. .
US authorities also announced measures to protect the bank’s customers by preventing further bank runs.
“This step will ensure that the U.S. banking system continues to fulfill its vital roles of protecting deposits and providing access to credit for households and businesses in a way that promotes strong and sustainable economic growth,” the agencies said in a joint statement. .
It 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.
“Other banks are likely to fail”
But some experts warn that the move by US authorities could trigger a banking crisis by encouraging bad investor behavior.
By ensuring depositors don’t lose money, authorities are raising the issue of moral hazard: the removal of people’s incentive to hedge against financial risk.
“This is a bailout and a major change in the way the US system has been built and its incentives,” said Nicolas Veron, a senior fellow at the Peterson Institute for International Economics in Washington.
“The cost will be passed on to everyone who uses banking services. If all bank deposits are now insured, why do you need banks?”
However, others defended the strong action.
Billionaire hedge fund manager Bill Ackman tweeted that if the authorities hadn’t intervened, “we would have had a 2030s bank run that would have continued on Monday, causing massive economic damage and hardship to millions of people.”
He added: “More banks are likely to fail despite the intervention, but we now have a clear roadmap on how the government will handle them.”
Proponents of action to guarantee deposits say taxpayers have been protected from funding the measures, unlike bank bailouts during the 2008 financial crisis.
Elsewhere, another beleaguered bank, First Republic Bank, announced it had boosted its financial strength by gaining access to funding from the Fed and JPMorgan Chase.