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Lawsuit Filed Against Three Executives at NY-Based Signature Bank; 3rd Largest Banking Failure in US History

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U.S. regulators took control of a second bank Sunday and announced emergency measures to ease fears depositors might pull their money from smaller lenders after the swift collapse late last week of Silicon Valley Bank, as was reported by the Wall Street Journal.

The AP reported that the announcement came amid fears that the factors that caused the Santa Clara, California-based bank to fail could spread, and only hours before trading began in Asia. Regulators had worked all weekend to try and come up with a buyer for the bank, which was the second largest bank failure in history. Those efforts appeared to have failed as of Sunday.

In a sign of just how quickly the financial bleeding was occurring, regulators announced that New York-based Signature Bank had failed and was being seized on Sunday, the AP reported. At more than $110 billion in assets, Signature Bank is the third-largest bank failure in U.S. history.

The Treasury Department, Federal Reserve and FDIC said Sunday that all Silicon Valley Bank clients will be protected and have access to their funds and announced steps designed to protect the bank’s customers and prevent more bank runs, as was reported by the AP.

“This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement.

Regulators announced that New York-based Signature Bank had failed and was being seized on Sunday. Photo Credit: AP

The WSJ reported that a senior Treasury official said the steps didn’t constitute a bailout because stock and bondholders in SVB and Signature wouldn’t be protected.

CNBC reported that Signature is one of the main banks to the cryptocurrency industry, the biggest one next to Silvergate, which announced its impending liquidation last week. It had a market value of $4.4 billion as of Friday after a 40% sell-off this year, according to FactSet.

As of Dec. 31, Signature had $110.4 billion in total assets and $88.6 billion in total deposits, according to a securities filing, as was reported by CNBC.

The Fed and Treasury separately said they would use emergency-lending authorities to make more funds available to meet demands for bank withdrawals, an additional effort to prevent runs on other banks.

“This should be enough to stop the depositor panic,” said William Dudley, who served as president of the New York Fed from 2009 to 2018, as was reported by the WSJ. “What it tells you is that risks to the financial system are not just tied to the big money-center banks.”

Officials took the extraordinary step of designating SVB and Signature Bank as a systemic risk to the financial system, which gives regulators flexibility to guarantee uninsured deposits, the WSJ reported.

Officials said that depositors at SVB will have access to all of their money on Monday.

The government’s bank-deposit insurance fund will cover all deposits at the two banks, rather than the standard $250,000, the WSJ reported. Federal regulators said any losses to the government’s fund would be recovered in a special assessment on banks and that the U.S. taxpayers wouldn’t bear any losses.

The AP reported that 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, the AP reported.

Among the bank’s customers are a range of companies from California’s wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change, the report said.

The AP reported that Sunrun, which sells and leases solar energy systems, had less than $80 million of cash deposits with Silicon Valley Bank as of Friday and expects to have more information on expected recovery in the coming week, the company said in a statement.

Stitchfix, the popular clothing retail website, disclosed in a recent quarterly report that it had a credit line of up to $100 million with Silicon Valley Bank and other lenders.

Silicon Valley Bank began its slide into insolvency when its customers, largely technology companies that needed cash as they struggled to get financing, started withdrawing their deposit, as was reported by the AP. The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest failure of a U.S. financial institution since the height of the financial crisis.

In a separate statement Sunday night, the Fed said it “is closely monitoring conditions across the financial system and is prepared to use its full range of tools to support households and businesses, and will take additional steps as appropriate,” the WSJ report said.

The central bank said it would make additional funding available to banks through a new “Bank Term Funding Program,” which will offer loans of up to one year to banks that pledge U.S. Treasury securities, mortgage-backed securities and other collateral, according to the WSJ report. Up to $25 billion from the Treasury’s exchange-stabilization fund will backstop the Fed lending program.

The AP also reported that Asian shares mostly fell Monday, shaken by a Wall Street tumble that set off worries that the biggest U.S. bank failure in nearly 15 years might have ripple effects around the world.

The AP reported that Japan’s benchmark Nikkei 225 slipped 1.8% to 27,643.59 in morning trading. Australia’s S&P/ASX 200 lost 0.7% to 7,098.20. South Korea’s Kospi shed 0.8% to 2,375.80. Hong Kong’s Hang Seng rose 0.5% to 19,421.05. The Shanghai Composite rose 0.4% to 3,243.82.

Also on Monday, the AP reported that President Joe Biden came before the American people in a televised address from the White House to address this matter.

Biden insisted that the nation’s banking system was safe, seeking to project calm after the collapse of two banks stirred fears of a broader upheaval and prompted regulators to offer emergency loans to banks to stave off additional failures.

“Your deposits will be there when you need them,” Biden said, during his prepared statements.

Despite the message from the White House, investors continued to dump shares in bank stocks. The AP reported that shares of First Republic Bank plunged more than 70% on Monday even after the bank said it was accessing emergency funding from the Federal Reserve as well as additional funds from JPMorgan Chase.

U.S. regulators closed the Silicon Valley Bank on Friday after depositors rushed to withdraw their funds all at once, according to the AP report.  It was the second largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.

“We must get the full accounting of what happened,” Biden said. “Americans can have confidence that the banking system is safe.”

Biden also said the managers of the banks should be fired.

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