The Biden administration and regulators have found a clever way to make the banking system pay for the stabilising of the US financial system in the wake of the closing of three banks – Silvergate, Silicon Valley and Signature.
Even though all three are small banks compared to US giants like JPMorgan, their failures in the past week have had an outsized impact on confidence and Silicon Valley Bank’s collapse threatened to trigger a crisis globally with hundreds of small tech and other start-up companies ensnared to varying degrees.
US Treasury officials have made it clear that the money to fully reimburse depositors of the collapsed Silicon Valley Bank and the shuttered Signature Bank will be come from other banks, not taxpayers. (Silvergate is a different sort of failure – it has closed and is winding itself down under supervision.)
The Deposit Insurance Fund (DIF) is part of the FDIC (Federal Deposit Insurance Corporation) and funded by quarterly fees assessed on FDIC-insured financial institutions, as well as interest on funds invested in government bonds.
The DIF currently has over $US100 billion in it, which Treasury officials told the media was “more than fully sufficient” to cover SVB and Signature depositors.
Using the DIF to shore up depositors is an elegant solution from the Biden administration to avoid reigniting the public anger sparked by the 2008 taxpayer-funded Wall Street bailouts.
“The Deposit Insurance Fund is bearing the risk,” one Treasury official said briefed US media on Sunday. “This is not funds from the taxpayer.”
The news that shareholders, management and boards with equity in the banks will not be bailed out helped steady unsteady markets across Asia and early European trading yesterday.
Tokyo eased 1.4% but Hong Kong shares were up 1.9%, down from an early 3% plus bounce.
The ASX 200 still lost more than 35 points to end at 7,108 thanks to small falls by the five major banks. The Commonwealth’s shares fell 0.4%, Westpac shares were down nearly 1.4%, NAB shares lost 1.6%, ANZ shares 1.9% and Macquarie Group shares fell 1.37%.
While the falls were smaller than what we saw on Friday, they still indicated underlying nervousness about any lingering knock-on effect from last week’s events.
Helping confidence here was the mostly positive flow of updates from a number of listed companies about their involvement with SVB.
A number of Australian and New Zealand tech firms said on Monday they did not have material exposure to SVB in the wake of its collapse. A string of updates to the ASX on the day revealed the positions of various companies.
What was surprising was the number of companies with an involvement – well over 30 listed groups at last count and several unlisted.
Australia’s banking regulator APRA said it had intensified the supervision of the local banking industry and was seeking more information from banks on any potential impact.
Among those who updated the market on Monday was Nitro Software, which said about $12.2 million of its global cash reserves were held on deposit at SVB and that recent events do not impact private equity firm Potentia Capital’s $A532.3 million bid for the company.
US-based Sezzle said the buy now, pay later firm’s relationship with SVB was only limited to funds on deposit, while Siteminder said its exposure consisted of up to $A10 million cash holdings and an undrawn $US20 million revolving credit facility.
Australian design technology firm Canva said the majority of its cash was outside SVB and that it had “safety nets in place” to ensure its operations were not compromised.
In New Zealand, cloud-based accounting software company Xero said it does not expect any adverse impact.
