US Government Closes Signature Bank and Moves to Stop Potential Banking Crisis

March 12, 2023 Enterprise, FinTech and Alternative Finance, Fintech International, Fintech Services, Innovation and Resources, Stories No comments

Canadian Press via Yahoo Finance | March 12, 2023

Signature bank - US Government Closes Signature Bank and Moves to Stop Potential Banking Crisis

The U.S. government took extraordinary steps Sunday to stop a potential banking crisis after the historic failure of Silicon Valley Bank, assuring all depositors at the failed institution that they could access all their money quickly, even as another major bank was shut down.

Fear of contagion: The announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread. Regulators had worked all weekend to try to find a buyer for the bank, which was the second-largest bank failure in history. Those efforts appeared to have failed Sunday.
- 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.

See: Silicon Valley Bank Collapses. Second Largest Financial Institution in U.S. History

In an effort to shore up confidence in the banking system, the Treasury Department, Federal Reserve and FDIC said Sunday that all Silicon Valley Bank clients would be protected and able to access their money. They also announced steps that are intended to protect the bank’s customers and prevent additional bank runs.
Lending Facility: In a separate move, the Federal Reserve late Sunday announced an expansive emergency lending program that's intended to prevent a wave of bank runs that would threaten the stability of the banking system and the economy as a whole.
- The lending facility will allow banks that need to raise cash to pay depositors to borrow that money from the Fed, rather than having to sell Treasuries and other securities to raise the money. Silicon Valley Bank had been forced to dump some of its Treasuries at 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.
Sunday's steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, its actions are relatively limited compared with what was done 15 years ago. The two failed banks themselves have not been rescued, and taxpayer money has not been provided to the banks.

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