SVB Depositors 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 ruled depositors will be fine.

From the Federal Reserve, FDIC and Treasury Department on Sunday:

Today we are taking decisive action to protect the US economy by increasing public confidence in our banking system. This move will ensure that the US banking system continues to fulfill its important role in protecting deposits and providing credit to households and businesses in a way that fosters strong and sustainable economic growth.

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

We are also announcing a similar systemic risk exemption for Signature Bank, New York, New York, which was closed today by its state founding agency. All depositors of this institution will be healed. As with the dissolution of Silicon Valley Bank, no losses will be borne by the taxpayer.

Shareholders and certain holders of unsecured debt will not be protected. Management was also dismissed. Any losses incurred by the Deposit Insurance Fund to support uninsured depositors will be reimbursed through a special deposit with the banks in accordance with the law.

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

The notable points here are: The US will make complete all Silicon Valley Bank depositors, both insured and uninsured (ie, amounts over $250,000). Regulators do not cover losses from “certain holders of unsecured debt”, although uninsured depositors are usually classified as such [EDIT: senior unsecured] Creditor**. ¯\_ (ツ)_/¯ point for [@]jason, We believe. Shareholders are zeroed out, we suppose.

The same applies to depositors at Signature Bank in New York, which was also closed. Like Silvergate, it had built part of its business on being crypto-friendly, but it also had a sizeable presence in the commercial real estate space.

U.S. banks must step in to address any deposit insurance fund deficits that may arise after the FDIC covers startup and/or crypto deposits.

So! Let’s hear from Twitter:

Banks will also be given funding to “meet the needs of all their depositors,” presumably so companies don’t try to take their uninsured deposits from their current favorite banks and place them with new banks.

The Fed released a separate statement with more details on this program. It’s called Bank Term Funding Program or BTFP (not to be confused with BTFD). With our focus:

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), which will provide loans of up to one year to banks, savings associations, credit unions and other eligible depository institutions that pledge U.S. Treasury and agency debt offers and mortgage-backed securities and other qualifying assets as collateral. These assets are valued at face value. The BTFP will be an additional source of liquidity for high-quality securities, eliminating the need for an institution to sell these securities quickly in times of stress.

With Treasury Secretary approval, the Treasury Department will allocate up to $25 billion from the Exchange Stabilization Fund to backstop the BTFP. The Federal Reserve does not anticipate having to resort to these backstop funds.

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

The Management Board carefully monitors developments on the financial markets. The capital and liquidity positions of the US banking system are strong and the US financial system is resilient.

Depository institutions can obtain liquidity against a wide range of collateral through the discount window, which remains open and available. In addition, the same margins applied to the BTFP-eligible securities apply to the discount window, further increasing the borrowable value at the window.

No haircuts, no masters. And more importantly, no realized losses from rate increases!

The term sheet can be found here.

US stock market futures were up more than half a percent on Pixel.

*We may update this post regularly with new news

**We also confused the place of uninsured depositors in the US cap structure and regret the error (thanks for the shout commenters).