Superintendent of NY State Dept. of Financial Services Adrienne Harris on Sunday announced that the New York Department of Financial Services (DFS) had taken possession of Signature Bank to protect its depositors. Harris appointed the Federal Deposit Insurance Corporation (FDIC) as the receiver of the bank, to prevent the spreading banking crisis.
Signature Bank, a New York state-chartered commercial bank with total assets of an estimated $110 billion and total deposits of some $88.59 billion as of December 31, 2022, is a major lender in the crypto industry.
The banking regulators announced that Signature Bank depositors will have full access to their money, just like the depositors at the failed Silicon Valley Bank. They will all get their money back.
“All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer,” the regulators said.
In a Sunday press release, the Federal Reserve Board announced it will “make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.”
“The Federal Reserve is prepared to address any liquidity pressures that may arise,” the press release announced.
The Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop. Additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions with collateral in US Treasuries, agency debt, mortgage-backed securities, and other qualifying assets.
The Federal Reserve Board is hoping the BTFP will offer additional liquidity, eliminating financial institutions’ need to quickly sell their securities in times of stress.
SVB rode high on the successful hi-tech companies at a time when money was plentiful at zero interest – until the Fed started raising interest rates to fend off rampant inflation. Its hi-tech customers, facing a newly unfriendly market, were late paying back their generous loans. Signature Bank experienced a similar sharp drop in liquidity because its main business came from cryptocurrency deposits – until the crypto market blew up last year.
If the efforts to stop the avalanche stop at $25 billion, we should consider ourselves lucky. The American e-commerce company Etsy has warned its vendors against a delay in processing payments, due to the collapse of Silicon Valley Bank. Should this failure to process payments spread throughout the economy, it would make 2008 look like a walk in the park.
The combined failure of the two banks, which are both associated with the “new economy” has reached $180 billion – for now: SVB saw $80 billion evaporate, Signature $100 billion. But the race is on to secure the behemoths against the infection: JPMorgan Chase, the Bank of America, and Citi.
The Bank of Israel is more vulnerable than its American counterpart since it’s estimated that 90% of the deposits of Israeli companies in SVB were not insured, and the path to make them whole is likely going to be lengthy and arduous.
We all know the central bank’s capacity to help Israel’s biggest taxpaying institutions, the hi-techs: it’s sitting on $204 billion, enough to remedy a lot of hurt – for a price.
The bad news from the US could also spell good news for the Israeli market: speculations are that the Fed is not going to continue raising interest rates for now. The rate in the US is currently at 4.75%, compared with Israel’s 4.25%. But Israeli banks and businesses are outside the infection zone. Local regulation is tough and no local bank is going to collapse, God willing. This safety vs. earnings consideration is sure to a. keep Israeli hi-tech money home in Israeli banks, and, b. attract foreign capital seeking safe haven.
