Summary:

• The US government is ensuring depositors with money in collapsed Silicon Valley Bank (SVB) can access their funds, while shareholders and creditors will record losses.
• Regulators including the FDIC, Federal Reserve, and State Treasury Department came together to ensure that the bank’s collapse does not lead to a chain reaction among others.
• The Federal Reserve announced setting up a new Bank Term Funding Program to prevent similar events in the future, with the Treasury Department putting up $25 billion to cover potential losses.

The US government has announced that it is stepping in to ensure that depositors with money in collapsed Silicon Valley Bank (SVB) are able to access their funds.

According to several statements, banking regulators like the FDIC, Federal Reserve, and State Treasury Department came together over the weekend to ensure that the bank’s collapse does not lead to a chain reaction among others.

As many already understand, SVB had failed because several depositors were trying to get their money out at the same time due to the tech industry experiencing difficulties. Without enough cash to satisfy withdrawal, it had to sell some securities that it had invested, recording huge losses and being unable to raise new capital.

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This action led to the regulators closing it down on Friday and placing it under the Federal Deposit Insurance Corporation (FDIC).

While the regulators will make depositors money available to them, shareholders and creditors will record losses on their investments as there are no bailouts on offer.

In addition, the Federal Reserve announced setting up a new Bank Term Funding Program to make sure that something similar does not happen to other banks. However, it is hard to prevent because the same fear that made depositors start asking for their money back from SVB can make them do something similar at other banks.

The Treasury Department is putting up $25 billion to cover losses that may arise from the funding program as well.

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