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Does Biden save Svb and Signature account holders? Wall Street and cryptocurrencies are gloating

2 years ago babelfish

Does Biden save Svb and Signature account holders? Wall Street and cryptocurrencies are gloating

What did the US Treasury decide for the depositors of Silicon Valley Bank and Signature Bank. The measures and the positive effects on Wall Street. Facts, numbers and insights

Biden and Yellen effect on Wall Street after the cracks of Silicon Valley Bank and Signature Bank. Here's what's happening (even to cryptocurrencies.

Futures up sharply on Wall Street after the emergency measures taken in the United States to deal with the failure of the Silicon Valley Bank and to prevent the crisis from infecting the banking system.

And then a positive opening for the American stock market.

Here are all the details.

BIDEN EFFECT ON THE STOCK EXCHANGE AFTER THE INTERVENTION ON SVB

At the end of a hectic weekend marked by a chaotic search for a potential buyer for bankrupt Silicon Valley Bank and the regulators closure of New York-based Signature Bank, the US government announced overnight that all SVB depositors and also Signature depositors would have access to all their money as of this morning.

The Dow Jones future reports a rise of 1.31%, that of the S&P 500 a +1.90%, while the Nasdaq is expected to open at +2.01%.

HOW WALL STREET OPENED

Wall Street holds to the shock wave of Svb. American stocks oscillate around parity, with the Dow Jones losing 0.01% and the Nasdaq gaining 0.09% while the S&P 500 loses 0.13%. The banks, especially the regional ones, however, are heavy. First Republic lost 77%, Western Alliance 83%, Charles Schwab 19.51%, PNC Financial 8.67% and Us Bancorp 10.40%. Large institutions are also declining. JPMorgan lost 0.61%, Bank of America 3.06% and Citigroup 5.61%.

Wall Street advances. The Dow Jones rose 0.61% to 32,107.84 points, the Nasdaq gained 1.01% to 11,254.98 points while the S&P 500 gained 0.50% to 3,881.50 points.

BIDEN EFFECT ALSO FOR CRYPTOCURRENCIES

Cryptocurrencies surge after US government move to protect Silicon Valley Bank's deposits and HSBC's takeover of the bank's UK branch Bitcoin gains almost 10% above $22,000, to its highest level in 10 days, according to CoinDesk data. Ethereum also performed well, advancing by around 10% to $1,600.

THERE ARE NO MORE CRUNKS IN AMERICA

First Republic and Western Alliance reeling under the weight of Silicon Valley Bank's meltdown. The shares of the two banks are falling sharply on Wall Street, with investors fearing they are the next to fall with the domino effect. The US government, according to rumors, is closely monitoring the situation of First Republic, and is ready to intervene if the bank encounters difficulties following a flight of customers. If necessary for the First Republic, the American authorities would be ready to resort to the same scheme implemented for Silicon Valley bank and Signature Bank, also because at least for the moment there would be no white knight ready to save it. Western Alliance Bancorp is also under severe pressure: its shares fell as much as 82% then recovered as the bank announced that more than 50% of its total deposits are insured and that it has $25 billion in cash reserves .

WHAT THE AMERICAN GOVERNMENT HAS DECIDED ABOUT SVB AND NOT ONLY

The US authorities have announced a series of measures to reassure individuals and companies about the solidity of the American banking system and will guarantee in particular the withdrawal of all deposits from the bankrupt Silicon Valley Bank.

In addition to the SVB, they will allow access to all deposits of another bank, Signature Bank, which was shut down by the regulator, much to everyone's surprise, according to a press release.

The Federal Reserve – or Fed, the central bank of the United States – has also pledged to lend the necessary funds to other banks that need them to meet their customers' withdrawal requests.

THE ECONOMIST'S COMMENT

HERE ARE US TREASURY MEASURES AFTER THE SVB CRACK

These measures were jointly adopted by Treasury Secretary Janet Yellen, the Fed and the Deposit Insurance Corporation (FDIC), after consulting with US President Joe Biden, the statement said.

The whole package reflects the turmoil threatening the US banking system, which has been crippled by the Fed's aggressive monetary tightening. The rate hike has put pressure on banks, which often lend long but borrow short , with short-term rates currently well above long-term rates, but above all it caused the values ​​of the bonds in the portfolio to drop.

THE FAILED BANKS

The ensuing wave of withdrawals caused three banks to fail this week: SVB, Signature Bank, and also smaller Silvergate Bank, known for its close ties to the cryptocurrency community.

Signature Bank of New York is the 21st largest bank in the United States, with assets estimated by the Fed at $110 billion at the end of 2022 and $88 billion in deposits. Its bankruptcy is the third in US history, after that of the SVB and Washington Mutual, which occurred in 2008.

"Today we are taking decisive action to protect the US economy by building confidence in our banking system," the Fed, Treasury and FDIC said.

WHAT HAPPENED

At the origin of the instability is the sudden rise in interest rates by the Fed, which on the one hand has dried up the collection of new liquidity and on the other has inflicted losses in the bond portfolio on the banks' assets, since the prices of bonds go down when yields go up. “When start-ups, which normally burn cash in the first few years of activity, began to withdraw their money from Svb at a higher rate than expected, the bank had to divest part of its 91 billion bond portfolio, bringing out the losses”, underlined Giovanni Pons of the newspaper Repubblica .

THE PROBLEM

The problem is that the FDIC guarantees deposits of up to $250,000, yet 95% of SVB accounts contain much higher sums.

HERE IS THE TEXT OF THE STATEMENT

The text of the Treasury, Fed and FDIC statement:

“Treasury Secretary Janet L. Yellen, Federal Reserve Board Chairman Jerome H. Powell and FDIC Chairman Martin J. Gruenberg released the following statement: “Today we are taking decisive action to protect the US economy by strengthening the public trust in our banking system. This step will ensure that the US banking system continues to play its vital role in protecting deposits and providing access to credit for households and businesses in order to promote strong and sustainable economic growth.

“After receiving a recommendation from the FDIC and Federal Reserve boards of directors and after consulting with the President, Secretary Yellen has approved actions that allow the FDIC to complete the resolution of Silicon Valley Bank of Santa Clara, Calif., in so as to fully protect all depositors. Depositors will have access to all their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by taxpayers."

We are also announcing a similar systemic risk exception for Signature Bank of New York, which was closed today by the state regulator that chartered it. All depositors of this institution will be compensated. As with the Silicon Valley Bank resolution, no losses will be borne by taxpayers."

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

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

“The US banking system is still resilient and has a solid foundation, thanks in large part to the reforms implemented after the financial crisis, which have ensured greater protection of the banking sector. These reforms, combined with today's actions, demonstrate our commitment to take the necessary steps to ensure depositors' savings remain safe."

(article updated at 4.30 pm on 13 March 2023)

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/depositanti-svb-signature-intervento-governo-criptovalute-wall-street/ on Mon, 13 Mar 2023 07:47:18 +0000.