The US government has assured depositors that they will be able to access all of their money quickly following the historic failure of Silicon Valley Bank.
Regulators had worked all weekend to try to find a buyer for the California-based bank – which has become the second-largest bank failure in history – but efforts appeared to have been unsuccessful on Sunday.
The US Treasury says all deposits in SVB are safe, though, as it sought to reassure customers of America’s 16th largest bank, as well as the financial markets.
Meanwhile, Sky News reported on Monday that the UK arm of SVB Bank is to be bought by HSBC Holdings. The sale was confirmed later on Monday morning.
The chancellor says the sale will provide security to UK customers, including tech firms the government was keen to protect from the bank’s demise.
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But despite the HSBC deal in the UK, and the US government’s moves to reassure people about SVB, the financial bleeding has continued to spread.
New York-based Signature Bank has also failed and was being seized on Sunday with more than $110bn (£90.8bn) in assets – becoming the third-largest bank failure in US history.
Asian markets were jittery as trading kicked off on Monday.
Japan’s benchmark Nikkei 225 fell 1.6% in morning trading, while Australia’s S&P/ASX 200 lost 0.3%.
South Korea’s Kospi sank 0.4% but Hong Kong’s Hang Seng rose 1.4% and the Shanghai Composite increased 0.3%.
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‘Vital roles’ protected
In a bid to instil confidence in the banking system, the Treasury Department, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) said on Sunday that all Silicon Valley Bank clients in the US would be protected and be able to access their money.
US authorities also announced steps so that the bank’s customers are protected, preventing additional bank runs.
“This step will ensure that the US 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.
It means that depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the $250,000 (£206,602) insurance limit, can access their funds today.
‘More banks will likely fail’
But some experts are warning that the move by the US authorities could spark a banking crisis by encouraging bad investor behaviour.
By guaranteeing that depositors would lose no money, authorities are raising the question of moral hazard – the removal of people’s incentive to guard against financial risk.
“This is a bailout and a major change of the way in which the US system was built and its incentives,” said Nicolas Veron, senior fellow at the Peterson Institute for International Economics in Washington.
“The cost will be passed on to everyone who uses banking services. If all bank deposits are now insured, why do you need banks?”
However, others defended the strong action.
Billionaire hedge fund manager Bill Ackman tweeted that if authorities had not intervened, “we would have had a 1930s bank run continuing first thing Monday causing enormous economic damage and hardship to millions”.
He added: “More banks will likely fail despite the intervention, but we now have a clear roadmap for how the gov’t will manage them.”
Supporters of the action to guarantee deposits say taxpayers have been protected from funding the measures, unlike the bank rescues during the 2008 financial crisis.
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Elsewhere, another beleaguered bank, First Republic Bank, announced it had bolstered its financial health by gaining access to funding from the Fed and JPMorgan Chase.
