America intervenes to enhance confidence in banking sector ‎after Silicon Valley Bank collapse

The US administration intervened on Sunday with a series of emergency measures to boost confidence in the banking sector after the bankruptcy of a Silicon Valley bank threatened to trigger a systemic crisis on a broader scale.

According to Reuters, after an eventful weekend, US regulators said clients of the bankrupt bank would be able to access their deposits starting Monday, and regulators also created a new facility so banks can get emergency funds. And the Federal Reserve (the US Central Bank) took a decision to make it easier for banks to borrow from it in emergency situations.

Regulators also moved quickly to shut down New York-based Signature Bank, which has been under pressure over the past few days.

US President Joe Biden said on Sunday evening that the Secretary of the Treasury and the head of the National Economic Council worked diligently with regulators in the banking sector to address the problems in the two banks.

“The American people and American companies can trust that their bank deposits will be there when they need them,” Biden said in a statement.

Silicon Valley and global markets breathed a sigh of relief as the regulators’ announcement came after US futures began trading in Asia. Investors raised stock futures contracts in the US Standard & Poor’s 500 index by 1.2 percent, and Nasdaq futures rose 1.3 percent.

“We believe that the steps taken by the Federal Reserve (the US central bank), the Treasury Department and the Federal Deposit Insurance Corporation will undoubtedly break a psychological ‘vicious cycle’ at the level of the regional banking sector,” said Carl Scamotta, chief market strategist at Corbay in Toronto. “

The Biden government’s intervention highlights the impact of the financial system and global markets on a harsh campaign led by the US Central Bank and other major central banks to curb inflation.

The Federal Deposit Insurance Corporation (FDIC) reported that about 89 percent of the $175 billion in Silicon Valley bank deposits were uninsured until the end of 2022.

A joint statement by Janet Yellen, US Treasury Secretary, Jerome Powell, Chairman of the Federal Reserve, and Martin Gruenberg, President of the Federal Deposit Insurance Corporation, stated on Sunday evening that all depositors will be compensated, including those whose deposits exceeded the maximum government insurance.