After the furor caused by the collapse of Silicon Valley Bank (SVB), another bank has been closed.
In a statement on Sunday, regulators said they would cover depositors from SVB and take control of another entity: Signature Bank.
The bank “is closed today by the state charter authority”, the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) said in the joint release.
“All depositors of this institution will be made healthy. As with the Silicon Valley Bank resolution, no losses will be borne by the taxpayer,” it added.
Related: “Everyone’s Crazy.” What’s going on with Silicon Valley Bank? Federal government takes control.
Also US Treasury Secretary Janet Yellen promised on CBS on Sunday that banks would not be “rescued” as they were in the aftermath of the 2008 recession.
“The reforms that have been made mean we’re not going to do that again,” she said. “We are concerned about savers and are focused on meeting their needs,” she added.
Signature opened in 2001 and is aimed at “serving the financial needs of private companies, their owners and senior managers”, the site sayadding the structure prioritizes building relationships with customers.
In the aftermath of the SVB crisis, and having participated in cryptocurrency banking (a major crypto bank that closed last week, Silvergate Capital), Signature said it faced a bank run in the billions, according to the Wall Street Journal.
This prompted the authorities to intervene. “I think the reaction was overblown,” said Barney Frank, a member of Signature’s board of directors, according to the WSJ, referring to the actions of regulators.
Last week, both investors and founders were present shocked When Silicon Valley Bank, a bank that focuses on startups and venture capital, said it had lost $1.8 billion and planned to raise billions more.
Then people like Ashley Tyrner, founder and CEO of FarmboxRx, a food and drug delivery company that helps reach underserved communities, rushed to get money out of the bank. Tyrner told me ukbusinessupdates.com on Friday that she tried to withdraw her money from the bank on Thursday but was unsuccessful.
A spokesperson for the company has said this ukbusinessupdates.com on Monday morning, the company had just accessed the “eight figures” on FarmboxRx’s SVB account.
“They’re moving it all to Bank of America,” the representative added.
Related: ‘It’s not the rich taking the hit’: Mark Cuban’s ‘Baby’ among multi-million dollar companies in Silicon Valley Bank
The panic poses a risk to the larger financial system. If everyone withdraws deposits at the same time, a so-called ‘bank run’ ensues, which can cause a bank to collapse. Banks are required to hold only 10% of a bank’s demand and checking deposits, according to the Federal Reserve.
Contagion is a phenomenon that allows strife in the financial system to spread easily (think of the cryptocurrency collapses of 2022 from Celsius and Genesis Trading).
An expert, Paul Ashworth, chief economist for North America at London-based Capital Economics, said in a note to the research firm’s clients that the plan to bail out the banks’ deposits should work, according to the New York Times.
“Rationally, this should be enough to prevent a contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age,” he wrote.
