First Citizens Bank will buy relevant parts of Silicon Valley Bank, the tech-focused financial institution whose bankruptcy this month sparked a chain reaction that has cast doubt on the health of banks around the world.
The FDIC and other regulators have already taken extraordinary steps to prevent a general crisis, insuring all deposits at the SVB and at another bankrupt institution, Signature Bank, even though each has more than $250,000, the maximum limit guaranteed by the FDIC.
The deal involving First Citizens was announced Sunday night and seemed to do what it was supposed to do: restore confidence to other regional banks across the country.
“The financial system is like a ship,” compared Aaron Klein, a senior fellow at the Brookings Institution and former head of the Treasury Department. “The collapse of the SVB rocked the boat, but it is righting itself.”
He also said: “Today’s news is good, it’s a positive step out of the hole that the SVB bankruptcy put us in. But the losses are huge: $20 billion is real money, even in Washington.”
This amount is the loss that the FDIC cited as the loss your deposit insurance funds might have to bear because of the SVB’s failure.
In any case, this money will not come from taxpayers. It will come from an FDIC fund fed by banks. But they can then increase their commissions or reduce the interest they pay to their clients, Klein said.
Since the banking crisis began in mid-March, regulators from the Treasury Department to the central bank (Federal Reserve) have said they continue to view the system as sound and safe.
Todd Phillips, a fellow at the Roosevelt Institute and a former FDIC attorney, said the extraordinary actions taken by regulators support these claims.
He also added that he would tell people as a general message: “Your deposits are safe. They’re going to be fine. This is a crisis for big shareholders in institutional banks who are worried” about losing money.
Phillips also anticipated that the next big steps could come from Congress, in the sense of expanding deposit protection for bank customers.
Amanda Agati, who heads investments at PNC Asset Management Group, looks at banking woes from an investor’s perspective and sees more trouble on the way. However, the severity and origin are still unknown.
Source: TSF
