Second U.S. Bank Fails in Spreading Crisis

WASHINGTON (Dispatches) --
Governments in the U.S., Britain and Canada are taking extraordinary steps to prevent a potential banking crisis after the failure of California-based Silicon Valley Bank prompted fears of a broader upheaval.
U.S. regulators worked through the weekend to find a buyer for the bank, which had more than $200 billion in assets and catered to tech startups, venture capital firms, and well-paid technology workers.
While those efforts were not successful as of Monday morning, officials tried to assure the bank’s customers that they would be able to access their money.
Karl Schamotta, chief market strategist for Corpay, said the collapse of Silicon Valley Bank could mean a “turbulent” time for Canadian investors.
Investors in the bank, however, will likely be wiped out. “They knowingly took a risk and when the risk didn’t pay off, investors lose their money,” Biden said. “That’s how capitalism works.”
Management at the bank has been fired, President Joe Biden noted. “If a bank is taken over by FDIC (Federal Deposit Insurance Company), the people running the bank should not work there anymore,” he said.
The early response from investors was mixed, with shares in Canada’s five biggest banks down by between two and four percent in early trading, but several U.S. banks saw large losses.
Shares in California-based First Republic Bank, which saw long customer lineups over the weekend, were down 66 percent before trading was halted. Western Alliance Bancorp was down by 77 percent. Comerica was off by 40 percent while Charles Schwab was down by 15 percent.
The damage-control bid came as part of an expansive emergency lending program intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole.
Meanwhile, the UK Treasury and the Bank of England announced early Monday that they had facilitated the sale of Silicon Valley Bank UK to HSBC, Europe’s biggest bank, ensuring the security of 6.7 billion pounds of deposits. HSBC paid the nominal sum of one pound to take over the assets.
While the bank is small, with less than 0.2 percent of UK bank deposits according to central bank statistics, it had a large role in financing technology and biotech startups that the British government is counting on to fuel economic growth.

Jeremy Hunt, the UK government’s Treasury chief, said that some of the country’s leading tech companies could have been “wiped out.”

Regulators in the U.S. rushed to close Silicon Valley Bank on Friday when it experienced a traditional bank run, where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.

In a sign of how fast the financial bleeding was occurring, regulators announced that New York-based Signature Bank had also failed and was being seized on Sunday.

At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history. Another beleaguered bank, First Republic Bank, announced Sunday that it had bolstered its financial health by gaining access to funding from the Federal Reserve and JPMorgan Chase.

Silicon Valley Bank began its slide into insolvency when it was forced to dump some of its Treasuries at a loss to fund its customers’ withdrawals. Under the Fed’s new program, banks can post those securities as collateral and borrow from the emergency facility.

Some prominent Silicon Valley executives feared that if Washington didn’t rescue the failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.

Governments and regulators around the world are checking for SVB exposure in their corporate and banking sectors.

The Europeans on Monday were on the watch. Finance Minister Bruno Le Maire said the bankruptcies of Silicon Valley Bank (SVB) and Signature do not pose a danger to French financial institutions.

Germany’s financial regulator BaFin said it was imposing a moratorium on the German branch of Silicon Valley Bank in the wake of its demise and noted the branch has “no systemic relevance”.

The bank opened a small branch in 2018 after it won a license to lend. SVB’s Frankfurt branch had assets of 789 million euros ($841.86 million) at the end of last year, according to BaFin.

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Second U.S. Bank Fails in Spreading Crisis