SVB collapse latest news: Biden says Silicon Valley Bank executives will be fired as stock market shakes

Senator Elizabeth Warren says that Congress enabled the collapse of Silicon Valley Bank. Writing in The New York Times on Monday, the longtime foe of Wall Street deregulation pointed the finger squarely at bank executives pressuring Congress to weaken the Dodd-Frank Act put in place after the 2008 financial crisis.

Greg Becker, the chief executive of Silicon Valley Bank, was one of the ‌many high-powered executives who lobbied Congress to weaken the law. In 2018, the big banks won. With support from both parties, President Donald Trump signed a law to roll back critical parts of Dodd-Frank. Regulators, including the Federal Reserve chair Jerome Powell, then made a bad situation worse, ‌‌letting financial institutions load up on risk.

Banks like SVB ‌— which had become the 16th largest bank in the country before regulators shut it down on Friday ‌—‌ got relief from stringent requirements, basing their claim on the laughable assertion that banks like them weren’t actually “big” ‌and therefore didn’t need strong oversight. ‌

Senator Warren says she warned about these risks in 2018 and wishes she had been wrong.

Silicon Valley Bank is no Lehman Brothers moment.

Of that we were assured by regulators, banking executives and any number of media pundits over the weekend, who took pains to draw SVB’s collapse as an outlier. But as the shock waves spread around the world Sunday, from Wall Street and here in London to Asia, it became horrifically clear that an entire new and important asset class would now need to be protected – climate tech.

While the failure of two banks in three days has spooked investors and brought back memories of the collapse of Lehman Brothers in 2008, the two situations are, for now, quite different.

Lehman Brothers was brought down by having large holdings of subprime mortgage debt, something that was found on the balance sheet of every large bank, which was why the federal government needed to step in to prevent a complete collapse.

In the case of Silicon Valley Bank, its business is very focused on tech and venture capital firms as well as some other regional businesses in California. As the tech industry losses grew in recent months the bank got into increasing difficulty as its clients withdrew more and more money as borrowing became more expensive due to interest rate hikes.

SVB unloaded its holdings of Treasury bonds, which were also depressed, in an attempt to raise funds to cover the withdrawals. Having sold a $21bn portfolio at a loss of $1.8bn concerns grew about the bank’s stability and its clients rushed to pull their deposits.

Larger banks such as Citi, Bank of America, and JP Morgan have much more diverse businesses and so they have not seen a large proportion of their depositors attempting to withdraw their funds as SVB saw. There is no run on the banks.

What the SVB situation tells us is that Federal Reserve rate increases to tackle inflation have depressed the value of Treasury bonds which every major bank holds. Therefore it is likely, as Goldman Sachs has said, that the Fed will hold off on its next interest rate hikes.

Arizona-based Western Alliance Bank President and CEO Kenneth Vecchione issued a statement this morning about the health of the bank.

Western Alliance has taken additional steps to strengthen its liquidity position to ensure that we are in a position to meet all of our client funding needs, including increasing our borrowing capacity. As of this morning, cash reserves exceed $25 billion and are growing, while deposit outflows have been moderate. Including accounts eligible for pass-through insurance, insured deposits exceed 50% of total deposits.

We also welcome the banking agencies’ statement yesterday expressing their commitment to ensuring liquidity within the banking system, and their confidence in the strength of the banking industry.

Stunned by the sudden collapse of Silicon Valley Bank, the main go-to foreign bank for the majority of Chinese start-ups, entrepreneurs and venture funds are scrambling for alternatives despite US regulators averting a banking crisis by guaranteeing all deposits of the troubled bank.

Chinese start-ups and fund managers said they are still looking to move their money out of SVB once they can. Some of them are turning to bigger US banks, while a few Chinese lenders such as China Merchants Bank and the Industrial & Commercial Bank of China are also rushing to fill the gap.

Such banks have offered account services similar to those of SVB, but found it hard to crack the US bank’s dominance among early-stage start-ups in China, where SVB has operated for more than two decades and has a local joint venture.

As SVB was one of the few banks that made it easy for start-ups to open bank accounts for dollar financing, it was the dominant foreign bank of choice for young companies in China, advisors and companies said.

The Dow Jones Industrial Average jumped some 200 points on Monday morning as investors sought areas removed from the banking industry to park money during the current volatility.

At the same time, regional and specialised banks similar in size to Silicon Valley Bank and Signature Bank saw trading halted after circuit breakers were triggered to prevent a crash in their value.

Western Alliance, based in Arizona, was down 80 per cent on early trading; First Republic Bank dropped 75 per cent; both Comerica and East West Bancorp fell around 30 percent; and Zions Bancorp in Utah fell 20 per cent.

There were smaller drops in the value of larger financial institutions such as Citi, Wells Fargo, Bank of America, and JP Morgan Chase.

The top tier fell nearly 2% in morning trading on Monday, down 132.2 points at 7616.2, with banks and financial stocks extending share losses seen on Friday.

HSBC’s £1 deal to take over the UK arm of failed Silicon Valley Bank (SVB UK) did not halt the slide on the London market as fears over contagion mounted.

The US government took extraordinary steps to stop a potential banking crisis, moving to protect all depositor cash after last Friday’s collapse of California-based SVB.

President Joe Biden reassured Americans that the nation’s banking system is safe after Silicon Valley Bank collapsed last week and said there would be accountability for financial executives.

The president’s actions come after the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation announced on Sunday evening that depositors for Silicon Valley Bank would have access to their money on Monday.

“No losses, and this is an important point, no losses will be borne by the taxpayers,” the president said. “Instead the money will come from the fees that banks pay into the deposit insurance fund.”

Eric Garcia reports from Washington, DC.