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Monday, March 13, 2023

U.S., UK regulators address SVB fallout

Following the collapse of Silicon Valley Bank on March 10, 2023, financial and tech communities are applauding swift measures by UK and U.S. regulators to avert an international banking crisis.

After working all weekend, the UK Treasury and Bank of England disclosed Mon., March 13, that HSBC will acquire SVP's UK subsidiary, which holds 6.7 billion pounds, the equivalent of $8.1 billion in customer deposits. As reports of the transaction circulated, media sources noted the United States has yet to find a buyer for the Santa Clara, Calif.-based bank.

SVB, a leading commercial bank and major bank for tech startups with $209 billion in reported assets in 2022, is the largest bank to fail since Washington Mutual closed its doors in 2008. With repercussions from SVB's failure being felt worldwide, stakeholders have expressed optimism in banking protections put in place after the 2008 financial crisis.

Netherlands-based Pharming Group, a global biopharmaceutical company and SVB UK client, congratulated UK policymakers for using powers granted by the UK Banking Act of 2009 to facilitate the HSBC transaction.

"The announcement by the UK government states that customer deposits have been protected and that customers of SVB UK will be able to access their deposits and banking services as normal from today," Pharming representatives stated. "As a result of these actions, Pharming expects to have access to the US$19 million it has on deposit at SVB UK, and to not bear any losses on these deposits."

U.S. channel fallout

Meanwhile, in the U.S. market, the collapse of New York-based Signature Bank and Calif.-based Silvergate Bank, both friendly to the cryptocurrency industry, sent bank stocks sharply down on March 10, as U.S. regulators worked through the weekend to find a buyer for SVB, invoking an emergency lending program and other stop gap measures put in place during the Dodd-Frank Wall Street Reform and Consumer Protection Act to help affected households and businesses access credit and working capital, including deposits exceeding the $250,000 guaranteed by the FDIC.

However, U.S. Treasury Secretary Janet Yellen stopped short of bailing out SVP, a sentiment supported by both sides of the house.

Rep. Tim Scott, R, S.C., in a March 12 statement, said, "Building a culture of government intervention does nothing to stop future institutions from relying on the government to swoop in after taking excessive risks. I remain committed to bringing accountability and answers to the American people, both from the banks and our regulators."

Angel investor Patricia Carlin, co-founder of Deposyt, commented in a March 12 LinkedIn post about Infinicept's $23 million funding round in May 2022, led by Silicon Valley Bank. "If SVB didn't blow up, they could have given Stripe, PayPal and others a run for their money by taking the lion's share of the tech industry's transactions and banking by launching a copycat to the Atlas program except this time with a direct plug into the source - SVB and its companies," she wrote, suggesting Adyen, Dwolla, Fiserv, Handpoint Technologies, LexisNexis, Payroc, SVB and other Infinicept partners may be affected by the bank's failure.

"How big is this micro payfac web and what's the true impact to SaaS companies who launched payfacs on the backbone of these involved companies?" Carlin wrote. "Where do they bank is the billion(s) dollar question."

President Biden weighs in

President Biden, in a March 13, 2023, morning address, stated his administration, Treasury Secretary Yellen and a team of banking regulators are acting quickly to protect stakeholders and affirmed all customers who had deposits in the failed banks will have access to their money, including small businesses that need to make payroll, pay bills and stay open.

"No losses will be borne by the taxpayers," he said. "Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund. Because of the actions our regulators have already taken, every American should feel confident that their deposits will be there if and when they need them."

Biden went on to say the FDIC will take over the three banks, and C-level managers will be fired. There is no cause for alarm, he added, because these managers knowingly took a risk, and when the risk didn't pay off, investors lost their money. That's how capitalism works, he said.

According to Bloomberg's Matt Levine, since startups have plenty of cash from investors and initial public offerings of stock, SVB had lots of deposits. But startups don’t need much in the way of loans because they have a surfeit of cash and don’t yet have fixed assets. So, rather than balancing deposits with loans that fluctuate with interest rates and thus keep a bank on an even keel, SVB’s directors took a gamble that the Federal Reserve would not raise interest rates. They invested in long-term Treasury bonds that paid better interest rates than short-term securities, but when interest rates went up, the value of those long-term bonds sank.

As several media commentators have mentioned, the downturn in the tech sector, which caused more companies than previously to withdraw funds for operations, also contributed to SVB's demise.

Biden emphasized that his administration will fully investigate these matters to get a full accounting and hold responsible parties accountable. "And finally, we must reduce the risk of this happening again," he said. "During the Obama Biden administration, we put in place tough requirements on banks, like Silicon Valley Bank and Signature Bank, including the Dodd Frank law to make sure that the crisis we saw in 2008 would not happen again." end of article

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