Silicon Valley Bank CollapseBank Shares Tumble in Wake of Failures

The stocks of regional banks fell following the collapse of Silicon Valley Bank and Signature Bank as regulators tried to contain the damage. The Federal Reserve promised an investigation and President Biden urged calm.

Plunging Shares of Regional Banks

+40

%

+20

0

−20

Percentage change in

stock price this year.

−40

Zions

Western Alliance

−60

PacWest

First Republic

−80

1

8

15

22

29

5

12

19

26

5

12

Jan.

Feb.

March

+40

%

+20

0

−20

Percentage change in

stock price this year.

−40

Zions

Western Alliance

−60

PacWest

First Republic

−80

1

8

15

22

29

5

12

19

26

5

12

Jan.

Feb.

March

Data as of Monday’s close.

Source: Refinitiv

By The New York Times

Pinned

Here’s what you need to know about Silicon Valley Bank collapse.

The stocks of U.S. regional banks plummeted on Monday as investors reassessed how much such lenders were worth following the recent sudden collapses of Signature Bank and Silicon Valley Bank.

Rapidly falling prices led to the temporary halt in trading for roughly a dozen banks in the morning when they triggered so-called circuit breakers, which are meant in part to prevent runaway crashes.

First Republic Bank stood out as the worst mover on the day, down 60 percent. Arizona-based Western Alliance tumbled 45 percent, KeyCorp and Comerica both dropped nearly 30 percent, and Utah-based Zions Bancorp fell about 25 percent.

Shares of bigger banks were less affected, but not immune. Citigroup and Wells Fargo each fell more than 7 percent, Bank of America slid 5.6 percent, and JPMorgan Chase dipped by less than 2 percent. The KBW bank index, which tracks the performance of 24 major banks, fell almost 12 percent, adding to sharp losses last week that erased nearly $200 billion from the aggregate value of the banks in the index.

“A core of a lot of this is behavior and psychology,” said Alan McKnight, chief financial officer at Regions Wealth Management, the investment management arm of Birmingham, Ala.-based Regions Bank, which tumbled about 7 percent on Monday. “We feel very well positioned in light of the diversity of our deposit base.”

The crisis in the banking sector prompted a swift re-evaluation of the likelihood that the Federal Reserve would continue its pace of interest rate increases. There was a growing sense among investors that fears over the resilience of the economy would stay the central bank’s hand, especially because the root cause of the issues faced by Silicon Valley Bank and Signature came from the interest rate increases enacted over the past year.

Those altered expectations helped the broader S&P 500 stock index shrug off the worst of the pain in the banking sector, because fewer rate increases would mean costs rising less for companies — a positive for investors. The S&P 500 ended the day 0.2 percent lower, after being down by more than 1 percent in early trading.

S&P 500

Oct. 30

Oct. 31

4,140

4,150

4,160

4,170

4,180

4,190

Data delayed at least 15 minutes

Source: FactSet

By: Ella Koeze

The two-year Treasury yield, which is sensitive to changes in interest rate expectations, fell 0.59 percentage points, to just above 4 percent — its biggest one-day drop since the “Black Monday” of October 1987, one of the most severe market crashes on record.

The yield normally moves in tiny fractions of a percentage point each day, and only topped 5 percent last week for the first time since mid-2007. The move on Monday recalled the biggest moves around the fall of Lehman Brothers in 2008 and the tech crash of the early 2000s.

Investors had ramped up their bets that the Fed would raise interest rates by as much as a full percentage point in the coming months as it continued to try slowing the economy and easing the pressure of inflation.

Now, there are growing expectations that the Fed won’t be that aggressive. Goldman Sachs said it believed the Fed would no longer raise interest rates at its meeting next week. Nomura went even further on Monday, saying it expected the Fed to cut interest rates “in reaction to looming financial stability risks.”

Investors’ expectations for where the Fed will have set interest rates by June have fallen from 5.48 percent last week to 4.57 percent on Monday.

But not everyone is so sure.

“I think there are some in the marketplace that believe this changes the trajectory at the Fed with regard to rate increases,” Mr. McKnight said. “We think there is more volatility to come. It doesn’t change our view that the Fed will be very focused on inflation and continuing with another rate increase.”

Mike Isaac
March 13, 2023, 8:36 p.m. ET

On Monday afternoon, Tim Mayopolous, Silicon Valley Bank’s new chief executive, sent a letter to customers reassuring them that the firm was open for “business as usual.” The firm is operating as a so-called “bridge bank” created by the F.D.I.C., and will continue to honor and protect both existing and new deposits. Mayopolous said he comes to the newly formed bank with experience; he joined Fannie Mae in the wake of the global financial crisis.

Erin Griffith
March 13, 2023, 8:21 p.m. ET

A start-up caught up in Silicon Valley Bank’s troubles braces for the possibility of even tighter money.

Image
A family playing at a Camp toy store in Brooklyn in 2019. When Silicon Valley Bank failed last week, 85 percent of Camp’s cash was trapped.Credit...Mary Inhea Kang for The New York Times

In its early days, Camp, a start-up that sells toys and experiences for children, found only one lender: Silicon Valley Bank. The deal required Camp to deposit its cash with the bank, according to Ben Kaufman, the company’s chief executive.

Since then, Camp has raised around $80 million in venture capital and has more than 200 employees. When the bank’s investors and depositors started panicking last week, 85 percent of Camp’s cash was trapped.

On Friday, after the bank failed, Mr. Kaufman said he knew he needed to act.

“A business without cash isn’t a business,” he said.

Some of Camp’s investors offered bridge loans, but those would have taken more than 24 hours to settle. Banks also swooped in, offering to take over Camp’s deposits for 60 percent of their value. But the company needed money immediately.

Camp organized a sale and in days sold more than 100,000 items — what the company typically sells in a month. That provided enough cash to keep the business running for a few weeks. On Monday morning, Camp moved its money to a J.P. Morgan Chase account that held a small portion of the start-up’s money.

Mr. Kaufman’s bigger concern, he said, is whether the debacle will make it even harder for start-ups to raise money.

“The equity market for growth companies like ours was already pretty frozen,” he said. “Will companies like ours have to go into hibernation mode?”

Advertisement

SKIP ADVERTISEMENT
Matthew Goldstein
March 13, 2023, 7:06 p.m. ET

A New York finance official points to uneasiness over Signature’s leadership as a factor in its shutdown.

Image
Regulators had worked with Signature Bank’s executives to try to shore up its liquidity, according to Adrienne A. Harris, New York State’s superintendent of financial services.Credit...Casey Steffens for The New York Times

The decision by regulators to close Signature Bank on Sunday night has left some investors scratching their heads.

About 90 percent of the New York-based lender’s customer deposits were uninsured, but Signature was about half the size of Silicon Valley Bank, which regulators seized on Friday. Signature’s customer base — mainly law firms and real estate firms — also were not moving to withdraw their money as quickly as the tech start-ups that did business with Silicon Valley Bank.

But Adrienne A. Harris, New York State’s superintendent of financial services, said the decision to close Signature was made with federal regulators. They worked with the bank’s executives to try and shore up its liquidity amid a rising number of withdrawal requests by customers as the weekend went on.

Those efforts, she said, were not enough to support letting the bank open for business on Monday.

Ms. Harris said that state officials in her department began to grow uneasy with some of the data the bank supplied over the weekend. “The bank failed to provide reliable data and created lack of confidence in the bank’s leadership,” she said.

Dennis Kelleher, chief executive of the nonprofit Better Markets, a group that supports greater transparency in financial markets, said regulators must have decided that taking control of Signature was only a matter of time.

“They figured Signature would fail sooner or later, so why wait,” he said.

Signature also stood out because it was one of the few banks in the United States that accepted crypto assets for deposits — something banking regulators have urged banks to regard with caution.

Last week, Signature said its client deposits involving digital assets stood at $16.52 billion, or just under 20 percent of its $88 billion in customer deposits.

But Ms. Harris said the bank’s move into crypto assets had nothing to do with the decision to ultimately move to close the bank.

Mike Dang
March 13, 2023, 6:32 p.m. ET

Did you hear Signature Bank collapsed? But not that one. Or that one.

Signature Bank would like its clients to know it is doing fine. And so would Signature Bank.

At least two other banks that use the Signature name had to make clear they have no affiliation with the Signature Bank in New York that was closed by regulators on Sunday to prevent instability in the broader financial banking system.

Over the weekend, ABC’s “This Week With George Stephanopoulos” mistakenly used the logo of a privately held Signature Bank headquartered in Rosemont, Ill., when referencing the turmoil experienced by the New York bank with the same name.

The Rosemont bank quickly contacted the show about the mix-up, and ABC made a correction.

“Fortunately, we’re very relationship-oriented and the confusion has been minimal,” said Bryan Duncan, a co-founder and executive vice president of Signature Bank in Illinois.

Mr. Duncan and two other executives at the bank emailed their clients and used social media to clarify the mix-up. They also posted their personal cellphone numbers on the bank’s website and offered to address any questions or concerns.

The Signature Bank in Illinois wasn’t alone. A community bank that also shares the name put some distance between itself and the failed New York bank with a wry Twitter post on Sunday night, offering a “friendly reminder” that it’s based in Arkansas.

Advertisement

SKIP ADVERTISEMENT
Mike Isaac
March 13, 2023, 5:59 p.m. ET

Henrique Dubugras, the co-chief exceutive of Brex, a credit and cash management company that caters to Silicon Valley startups, told CNBC that his company opened more than 3,000 new accounts over the weekend as entrepreneurs rushed to remove their money from Silicon Valley Bank.

Ron LieberTara Siegel Bernard
March 13, 2023, 5:14 p.m. ET

Here are the protections in place for your bank deposits, and how you can do more

Image
The line on Monday outside the former Silicon Valley Bank in Santa Clara, Calif., which opened under new auspices.Credit...Jim Wilson/The New York Times

Customers of Silicon Valley Bank aren’t going to lose any of their deposits. Neither will the businesses or individuals who have money at Signature Bank.

That resolution, however, doesn’t make the upheaval of the last several days any less scary. As stocks of banks like First Republic and even brokerage industry stalwarts like Charles Schwab shudder, it’s natural to want to know what kind of backstops exist to keep you from losing money if your financial institution fails.

The news here is mostly good, since entities like the Federal Deposit Insurance Corporation and the Securities Investor Protection Corporation offer hundreds of thousands of dollars of guarantees.

Here are some answers to questions you may have about checking accounts and about money at investment firms. We’ll also suggest a few steps you might take even if the tumult subsides. Shoring up defenses — and having a few backup plans — is just good financial hygiene.

How much deposit insurance exists for my bank account?

You generally get $250,000 of insurance per depositor, per bank. The insurance covers several categories of holdings, including checking and savings accounts, prepaid debit cards and certificates of deposit. (In the Silicon Valley Bank and Signature Bank instances, regulators chose to make depositors entirely whole — with no cap — though there is no guarantee that they would do it again the next time a bank failed.)

If you have many different types of holdings, then you add up the balances to see if they exceed $250,000. If not, then, say, your $50,000 C.D. and your $25,000 savings account are both protected.

The insurance costs nothing, and you don’t have to check a box when you open your account to get it. It’s automatic as long as you’re banking with an F.D.I.C.-insured institution. The F.D.I.C.’s website has a searchable database.

What if I want more than $250,000 in coverage?

If you set up a joint account with someone else — say, a spouse — you each get $250,000 in coverage, for a potential total of $500,000 in a single joint account.

Another possibility is to open accounts at different institutions. You get the same F.D.I.C. coverage at each, with no limits on the number of institutions where you can have accounts (and insurance).

How does F.D.I.C. insurance work if my bank goes out of business?

If you have enough insurance to cover your balances, you usually have access to that money within days, often the next business day. Sometimes your money will end up at a new bank right away if that bank takes over your old one. So-called bridge banks operate the former Silicon Valley Bank and Signature Bank for now.

If you don’t have enough insurance to cover your balances, you may still get some or most of that uncovered amount back. But it could take years for the F.D.I.C. to sort it out as it winds down a failed bank’s operations and sells its assets.

Image
Luis Mayorga, an official of the Federal Deposit Insurance Corporation, speaking with Silicon Valley Bank clients on Monday outside the Santa Clara office.Credit...Jim Wilson/The New York Times

What would happen to the direct deposit of my paycheck or Social Security payment if my bank failed?

According to the F.D.I.C., if another financial institution acquires the failed bank right away, the deposits should land in your new account without incident. Bridge banks should have the same abilities.

How would I get access to my safe deposit box if my bank failed?

Access to safe deposit boxes should be possible the next business day after a bank failure, the F.D.I.C. says on its web page with frequently asked questions about bank failures.

How much deposit insurance exists for my credit union?

The National Credit Union Administration administers an insurance fund that is similar to the F.D.I.C.’s and has its own $250,000 limit. You can read more about it on the mycreditunion.gov website.

How are my brokerage and investment accounts protected?

If a brokerage firm is in financial trouble, an entity called the Securities Investor Protection Corporation, known as SIPC, serves as a backstop. It’s a nonprofit corporation that was created under the Securities Investor Protection Act of 1970.

SIPC generally covers up to $500,000 of securities and cash (including a $250,000 limit for the cash component) for each customer, though that can be higher for people with multiple accounts — depending on the account types and whether they’re individual accounts or jointly held.

A traditional individual retirement account, a Roth I.R.A. and an individual brokerage account, for example, would each qualify for a $500,000 limit at the same firm. The same goes for a separate joint account or a trust account.

But if you had two individual brokerage accounts at the same firm, for instance, you would receive only up to $500,000 in protection for both. A married couple with a joint brokerage account — as well as two individual brokerage accounts at the same firm — would receive an additional $500,000 in coverage for the joint account.

Do all brokerage customers receive protection?

SIPC says on its website that it is important to understand that its coverage “is not the securities world equivalent of the Federal Deposit Insurance Corporation.” Its focus is on “restoring customer cash and securities left in the hands of bankrupt or otherwise financially troubled brokerage firms.”

The protection is available only if the brokerage firm fails and is a member of SIPC; most brokerage firms are required to be members. You can check if your brokerage firm is one of its 3,500 members on SIPC’s website or by contacting the firm.

After a brokerage firm has failed, SIPC quickly seeks to transfer the accounts to a healthy firm so customers can get immediate access to their investments. If account transfers aren’t possible, or money is still missing, customers can file claims with SIPC for what they are owed, said Josephine Wang, president of SIPC.

What types of investments are covered?

In addition to cash, covered investments include stocks, bonds, mutual funds, and other company shares and registered securities.

SIPC does not cover unregistered investment contracts, unregistered limited partnerships, fixed annuity contracts, currency, and interest in gold, silver or other commodity futures contracts or commodity options, according to SIPC.

Why were investors worried about Schwab?

Shares of Charles Schwab, the giant retail brokerage, plunged on fears that it, too, could be swept up in the crisis. The stock fell as much as 23 percent on Monday before closing down more than 11 percent. Investors may have been worried about its large banking business, which, like Silicon Valley Bank, holds a considerable amount of fixed-income investments that have dropped in value because of rising interest rates.

But Schwab has healthy reserves, and analysts aren’t worried about its financial position. And as the firm’s top executives recently pointed out, more than 80 percent of its clients’ cash is insured dollar for dollar by the F.D.I.C.

Should I have backup credit cards?

There is no indication that any major credit-card issuer is in trouble, but it’s always wise to have two cards — with different companies — if you can qualify for that much credit.

You might lose your primary card, for instance. Or the card company could shut the card down if it’s worried about fraud — say, when you’re traveling.

Could I lose access to A.T.M. withdrawals?

If a bank fails, there could be technical snafus if a new institution inherits insured accounts. That might render an A.T.M. card inoperable for a few days.

Another possibility is a widespread power outage that lasts for days and makes it hard to get cash (and use credit or debit cards in stores). During the run-up to severe weather, bank customers may empty A.T.M.s. And in the aftermath, it may be hard for the money trucks to get to the A.T.M.s to refill them.

Given these possibilities, it’s a good idea to tuck a few hundred dollars away if you can afford to set that money aside. Just remember where you put it. It’s easy to forget — and then, years later, give away the clothes or books with the money still hidden inside.

Kellen Browning
March 13, 2023, 4:05 p.m. ET

Start-ups begin to recover money trapped in Silicon Valley Bank.

Image
A customer reading a notice about Silicon Valley Bank’s closure at the bank’s headquarters in Santa Clara, Calif., last week.Credit...Jim Wilson/The New York Times

Some start-ups that had money trapped in Silicon Valley Bank when it failed last week began regaining access to their accounts on Monday, investors and start-up executives said, a welcome relief after days of limbo.

Bryan Lord, the chief executive of a medical devices company called Pristine Surgical, said he and the start-up’s controller spent more than five hours trying to get the firm’s money out of Silicon Valley Bank on Monday, refreshing the bank’s website and working their way through the digital queue.

“You’d get close and you’d get bumped out,” Mr. Lord said. Finally, the millions of dollars that Pristine Surgical had stuck in the bank cleared.

“You like to be just a distinguished captain of your start-up enterprise, but it was double fist pumps in the air,” he said. “It’s a big relief.”

Though Mr. Lord had been reassured by news over the weekend that federal regulators would ensure that Silicon Valley Bank’s customers were fully repaid, he had no idea when he would see that money until the funds actually made it out of the bank Monday afternoon. On Friday, the Federal Deposit Insurance Corporation took over the bank, which is now operating as the Deposit Insurance National Bank of Santa Clara.

“You’re not sure whether it’s going to be Monday, Tuesday, Friday or a month,” he said. A longer wait, he added, “would be problematic.”

With the funds now secured, Mr. Lord said, his company could stop worrying about how it will pay its dozen employees and return to its product launches. “Life will go on as previously planned,” he said.

Arjun Kapur, the managing partner of Forecast Labs, an investment arm of Comcast that works with start-ups, said the majority of the founders he heard from on Monday were also able to get access to their money through Silicon Valley Bank’s website.

“You’re ecstatic — you went from having an existential issue and not being able to make payroll to, ‘At least I have the funds here,’” Mr. Kapur said.

But other start-up executives said they were still waiting for their money.

When Zaid Rahman, the founder of the financial technology start-up Flexbase, began checking in with his team at 7:30 a.m. on Monday, colleagues told him that Silicon Valley Bank’s website was loading slowly and bogged down by errors, likely because of the high number of customers trying to withdraw funds.

Flexbase employees were refreshing the bank’s website every hour, he said.

It was “annoying” to see the bank’s web app “throwing up an error after refreshing it a bunch of times,” Mr. Rahman said. Even so, Mr. Rahman said he was confident he would eventually be able to withdraw his company’s funds, which are needed to pay employees.

“What a crazy few days,” he added.

Though the withdrawals were taking time Monday, the government’s assurance that start-ups would eventually be repaid came as a relief to customers with millions of dollars on the line. That included Jay West, a founder and the chief technology officer of BioSkryb, a biomedical cancer research and technology venture.

“I feel much better than I did Friday night,” he said.

When his company’s funds at Silicon Valley Bank were frozen on Friday, Mr. West began worrying about how BioSkryb would make payroll for its 62 employees. He spent the weekend calling federal officials and his congressional representatives. With millions trapped at the bank, he feared for his company’s survival.

“The government did the right thing, but there will be ramifications to this,” Mr. West said, adding, “There should be.”

Though the immediate crisis for many start-ups has receded, some now face tough questions about which banks to work with and whether they can still count on the loans that Silicon Valley Bank had agreed to provide to their companies.

Some founders spent the weekend opening new bank accounts to distribute the funds they hoped to recover. Until those concerns are resolved, Mr. Kapur said, many start-ups will be operating cautiously.

“All has not been restored in the universe,” he said. “A lot of companies are still looking to tighten the belt, cut expenses and operate lean for a few weeks.”

Stacy Cowley contributed reporting.

Advertisement

SKIP ADVERTISEMENT
Joe Rennison
March 13, 2023, 4:04 p.m. ET

Trading has closed for the day, and stocks of U.S. regional banks took a beating as investors reassessed how much such lenders were worth after collapse of Signature Bank and Silicon Valley Bank. First Republic fell 60 percent, Western Alliance slumped 45 percent and KeyCorp fell nearly 30 percent.

Joe Rennison
March 13, 2023, 4:10 p.m. ET

But the crisis has prompted investors to lower expectations for how much the Fed will raise rates going forward, in part because the root cause of the pressure in the banking sector stemmed from recent rate increases. That in turn helped lift the broader stock market, investors said. At the closing of trading, the S&P 500 ended the day slightly lower after rallying back from earlier losses.

Jeanna Smialek
March 13, 2023, 4:01 p.m. ET

Reporting from Washington

The Federal Reserve Board just announced that Michael S. Barr, its vice chair for supervision, is leading a review of the oversight of Silicon Valley Bank in light of its failure.

Jeanna Smialek
March 13, 2023, 4:02 p.m. ET

Reporting from Washington

“The events surrounding Silicon Valley Bank demand a thorough, transparent, and swift review by the Federal Reserve,” Jerome H. Powell, the Fed chair, said in a release on Monday. Questions have been raised about the regulations and supervision of the bank, which grew rapidly and amassed vulnerabilities that paved the way for its failure on Friday.

Jeanna Smialek
March 13, 2023, 4:02 p.m. ET

Reporting from Washington

“We need to have humility, and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” Barr said. The review will be publicly released by May 1, the Fed announced.

David Yaffe-Bellany
March 13, 2023, 3:58 p.m. ET

The price of Bitcoin is up more than 12 percent over the last 24 hours, which is surprising on some level given the recent failure of two crypto-friendly banks, Signature and Silvergate. But the intervention by the U.S. government has softened the blow, and Bitcoin’s rally could be a reflection of that.

Matthew Goldstein
March 13, 2023, 3:20 p.m. ET

The first of what is likely to be many shareholder lawsuits was filed on Monday against Silicon Valley Bank and two top executives. The complaint, filed in San Francisco federal court, said the bank misled investors by not fully disclosing the impact of rising interest rates on its operations. The lawsuit says that contributed to the run on the bank by depositors and led to its collapse.

Advertisement

SKIP ADVERTISEMENT
Christina Kelso
March 13, 2023, 2:53 p.m. ET

Customers lined up outside Silicon Valley Bank’s main office in Santa Clara, Calif., to speak with company representatives and F.D.I.C. officials.

Video
Video player loading
CreditCredit...Reuters
Joe Rennison
March 13, 2023, 2:20 p.m. ET

Stock markets settled in afternoon trading, with the S&P 500 rising 0.6 percent. Investors shifted from the crisis in the banking sector to the positive effect it may have by reducing the number of rate increases coming from the Federal Reserve, since rising rates helped contribute to the troubles at Silicon Valley Bank and Signature Bank.

S&P 500

Oct. 30

Oct. 31

4,140

4,150

4,160

4,170

4,180

4,190

Data delayed at least 15 minutes

Source: FactSet

By: Ella Koeze

Joe Rennison
March 13, 2023, 2:20 p.m. ET

Rate increases raise costs for consumers and companies, weighing on the stock market. So the expectations that there will be fewer of them has given some tailwind to trading.

Joe Rennison
March 13, 2023, 2:20 p.m. ET

Still, many bank stocks remained in the doldrums, with First Republic down over 60 percent and Western Alliance nearly 50 percent lower.

Emily Flitter
March 13, 2023, 1:42 p.m. ET

Barney Frank, a co-author of key banking legislation, was on the board of one of the failed banks.

Image
Barney Frank during a hearing of the House Financial Services Committee on Capitol Hill in 2009. The former congressman had been a board member for Signature Bank since 2015.Credit...Brendan Smialowski for The New York Times

Barney Frank, the former congressman from Massachusetts who helped write the Dodd-Frank Act — the legislation passed in the wake of the 2008 financial crisis with the intention of shielding the economy from a similar crisis — said on Monday he was disappointed in the decision of regulators to shut down Signature Bank on Sunday, where he had been a board member since 2015.

Mr. Frank said in an interview on Monday that the bank’s failure had come as a shock to him, because its situation seemed to have stabilized by Sunday. Regulators, he believed, took control of Signature to send a message to other banks to stay away from cryptocurrencies.

“They shoot one man to encourage the others,” Mr. Frank said, referring to an adage about using a single military execution as an incentive for the subject’s peers to behave differently that he thought applied to the regulators’ handling of Signature. “I think we were shot to encourage the others to stay away from crypto.”

Signature, which took deposits from digital asset companies, was known as a crypto-friendly bank, even though it did not directly deal with cryptocurrency assets.

But Mr. Frank’s interest in the bank related to its focus on making loans to developers building affordable housing and accessing the federal low income housing tax credit, a system that Mr. Frank championed during his time in Congress.

“What had attracted me to it, and still does, is its role as a multifamily housing lender,” he said.

During the 2008 financial crisis, Mr. Frank helped establish the short-term rescue plan, and later co-wrote the Dodd-Frank Act, which toughened the regulatory rules put in place to prevent the nation’s biggest banks from engaging in risky behavior.

Advertisement

SKIP ADVERTISEMENT
Rob Copeland
March 13, 2023, 1:21 p.m. ET

Lloyd Blankfein, who was the chief executive of Goldman Sachs during the last financial crisis, tells me that this one does not appear as dire. “Everyone is breathing hard today, and maybe I’m missing it, but I think it should settle down,” he says.

Rob Copeland
March 13, 2023, 1:21 p.m. ET

In particular, he says that depositors worried about getting money out of First Republic — one of the banks whose shares spiraled down today — should feel assuaged. “The government has done what they needed to do,” he says. “It’s not critical to move your money from First Republic.”

Matthew Goldstein
March 13, 2023, 1:02 p.m. ET

Lifting the deposit insurance cap, even temporarily, can pose a ‘moral hazard.’

Image
The Federal Deposit Insurance Corporation and the Federal Reserve took a number of emergency actions on Sunday evening that were aimed at preventing future customer bank runs.Credit...Sarah Silbiger for The New York Times

If the steps taken by bank regulators to bolster the banking system do not work, the next move could be a temporary suspension of the $250,000 cap on deposit insurance, which would afford protection to all money held by bank depositors.

Patricia A. McCoy, a professor at Boston College of Law, said that during the financial crisis of 2008, the cap on deposit insurance was lifted under the Transaction Account Guarantee Program for most banks, and the suspension remained in place until the end of 2010. Ms. McCoy said that could be the next step taken by regulators if large customers of banks like First Republic Bank continue to run for the exits and move their accounts.

“They are probably holding that power in reserve,” said Ms. McCoy, who has written about the risks that can come with raising the cap on bank deposit insurance.

The Federal Deposit Insurance Corporation and the Federal Reserve took a number of emergency actions on Sunday evening that were aimed at preventing future customer bank runs. The regulators reacted to fears that the tech start-ups that worked with Silicon Valley Bank and the many law firms and real estate companies that have large accounts with Signature Bank would not be able to make their payroll obligations.

Ms. McCoy said bank regulators were clearly hoping that guaranteeing to honor all deposits at the two banks they closed would reassure other bank customers with account balances greater than $250,000. She said the move by the Federal Reserve to make more liquidity available to banks also is intended to deter potential new bank runs.

The goal was to stem the worry that companies that do business with regional banks don’t race to move their accounts to the nation’s handful of big banks, which would further make those institutions too big to fail.

Ms. McCoy said regulators and lawmakers need to be careful about permanently raising or eliminating the deposit cap as it can encourage unnecessary risk taking.

“Every time this happens it increases the potential for moral hazard going forward,” Ms. McCoy said.

She said the problem regulators must confront is that bank panics are often largely psychological and social media can “fuel the panic.”

Just on Monday, the hedge fund manager William Ackman posted on Twitter that the F.D.I.C. “needs to explicitly guarantee all deposits now. Hours matter.” He said if regulators didn’t act immediately “our economy will not function effectively.”

Joe Rennison
March 13, 2023, 1:01 p.m. ET

Stock indexes across Europe suffered their worst day of the year, as the tumult from the bank collapses in the United States spread around the globe. Britain's FTSE 100 index ended 2.6 percent lower, France's CAC 40 sank 2.9 percent and Germany's Dax dropped 3 percent.

Joe Rennison
March 13, 2023, 1:01 p.m. ET

The region's lenders were among the worst performers on Monday. Deutsche Bank fell 4.9 percent, Standard Chartered dropped 6.9 percent and Barclays fell 6.3 percent.

Advertisement

SKIP ADVERTISEMENT
David Yaffe-Bellany
March 13, 2023, 12:59 p.m. ET

The collapse of Signature and Silvergate deals a blow to the crypto industry.

Image
Fans cooling a cyrptocurrency mining operation.Credit...Gabriela Bhaskar for The New York Times

The cryptocurrency industry was founded to create a revolution in finance: an alternate system that would exist outside big banks and other mainstream financial institutions.

But that hasn’t happened. Instead, the industry remains deeply reliant on banks to conduct basic transactions and convert funds back and forth between crypto and traditional currencies.

Now two of the industry’s most reliable partners — Silvergate Capital and Signature Bank — have collapsed, forcing crypto firms to grasp for alternative options. For years, those banks were two of the few traditional financial institutions willing to work closely with crypto companies. Signature ran a digital payments network called Signet that allowed its crypto clients to make payments 24 hours a day, seven days a week.

The failure of the banks could have long-term implications for the industry, making it harder for crypto companies to conduct basic services in the United States.

The bank closures “create a huge gap in the market for crypto-friendly banking,” Jake Chervinsky, chief policy officer for the Blockchain Association, wrote on Twitter. “There are many banks that can seize this opportunity.”

In theory, other banks could step in and work more closely with crypto companies. But a series of market crashes last year has made many traditional financial firms wary of becoming entangled in the freewheeling industry.

And banking regulators have started sounding an alarm. In January, three top federal regulators issued a statement warning banking organizations to deal cautiously with crypto companies.

Emily Flitter
March 13, 2023, 12:46 p.m. ET

Barney Frank, a former congressman from Massachusetts who served on Signature Bank's board, tells me that the bank’s failure surprised him, especially since its situation seemed to have stabilized. Frank said it seemed that regulators wanted to send a message to other banks to stay away from cryptocurrencies. “They shoot one man to encourage the others,” he said.

Rob Copeland
March 13, 2023, 12:20 p.m. ET

Among the stocks halted at one point on Monday: Charles Schwab, one of the most mainstream names in banking. Schwab has grown rapidly in recent years, particularly in the brokerage space; in 2020 it acquired TD Ameritrade, which had earlier hoovered up Scottrade. Schwab held about $800 billion in deposits and hundreds of billions of dollars in other funds, according to its latest annual report.

Image
Credit...Desiree Rios for The New York Times
Rob Copeland
March 13, 2023, 12:21 p.m. ET

Schwab's shares recovered somewhat after its trading resumed, though they were still off nearly double-digits around noon. The firm also put out a statement saying it was “well-positioned to navigate the current environment,” in part because it holds more liquid, or easily sellable, assets than some of the smaller banks under pressure. Schwab's statement called itself "a safe port in a storm."

Advertisement

SKIP ADVERTISEMENT
Jeanna Smialek
March 13, 2023, 11:58 a.m. ET

Reporting from Washington

Tiny is the new ‘too big to fail.’

The 2008 financial crisis enshrined a term — Too Big to Fail — that has defined bank oversight in America and around the world ever since. The idea is that massive banks are so central to finance, and so interconnected, that their downfall would send reverberations coursing across the system and must be averted.

But the events of the past week suggest that size isn’t the only thing that matters.

The Silicon Valley Bank shutdown on Friday became the biggest bank closure since the global financial crisis, but it was not massive in absolute terms: The move to fail it put nearly $175 billion in customer deposits under the Federal Deposit Insurance Corporation’s control. The bank wasn’t large enough to qualify for America’s most stringent financial regulations, which include annual stress tests — it was only recently big enough to face tests every other year.

Yet the bank’s failure sent shock waves through the banking system. It happened rapidly, as customers with deposits in excess of the $250,000 deposit threshold took their money and ran. As it faced that run, the bank had to sell a lot of long-term debt that was worth less after a year of rapid Federal Reserve interest rate increases, which lower the market price of financial assets like bonds. That forced it to realize losses it could have otherwise ignored. Besides helping to hasten the bank’s demise, it underscored that many other banks could be on the hook for similar losses if they too suddenly had to sell their asset holdings.

By highlighting a two-part threat — that uninsured depositors could get spooked and pull their money rapidly in a world of online banking and social media, and that many banks had not fully grappled with the reality of a higher-interest-rate world — Silicon Valley Bank managed to be destabilizing.

The government responded in force on Sunday. Using an exemption for systemic risk, the F.D.I.C., Treasury and Fed announced that both Silicon Valley Bank and another that had failed, Signature Bank, would be cleaned up with depositors paid back in full. Usually that is not possible, because if there is no risk of systemwide problems the F.D.I.C. has to unwind a failed bank in the cheapest way possible.

Besides reassuring nervous depositors, the government also tried to reassure customers and businesses eyeing interest rate risk in the banking system. The Fed announced that it would set up an emergency lending program that will give banks loans of up to one year in exchange for assets at their original value — not their market value in light of the rate changes.

The reality that “a much smaller bank” prompted a set of “extraordinary responses” from the government means that regulators are going to have to “think much harder” about how bank failures will be resolved in the future, said Daniel Tarullo, a former Fed governor who was key to financial regulation after the 2008 downturn and who is now at Harvard.

“If we realize that this is going to be part of bank regulation — cleaning up after — then we need to talk about it beforehand,” Mr. Tarullo said.

Joe Rennison
March 13, 2023, 11:53 a.m. ET

Stock markets have settled somewhat, with the worst affected regional banks seeing some reprieve while still remaining significantly lower for the day.

Joe Rennison
March 13, 2023, 12:14 p.m. ET

There is some push and pull here. The effect of the crisis in the banking sector has been to lower investor expectations for the amount the Federal Reserve will be able to keep raising interest rates, because those rate hikes are at the root of the pain among regional banks. Those rate hikes have also pressured other companies, so fewer of them in the future is positive for the stock market, helping to lift the S&P 500 0.4 percent higher by midday.

Emily Flitter
March 13, 2023, 11:51 a.m. ET

Barney Frank, the former Massachusetts congressman who served as chairman of the House Financial Services Committee from 2007 to 2011, was a director of Signature Bank. Mr. Frank’s interest in the bank, whose board he joined in 2015, was because of its business making loans to developers building affordable housing and accessing the federal low income housing tax credit, a system that Mr. Frank championed during his time in Congress.

Advertisement

SKIP ADVERTISEMENT
Eshe Nelson
March 13, 2023, 11:46 a.m. ET

Reporting from London

After a ‘very alarming weekend,’ tech companies in Britain get a rescue.

Image
London’s financial district. The heads of more than 140 tech companies in Britain had warned that the insolvency of Silicon Valley Bank represented an “existential threat.”Credit...Sam Bush for The New York Times

The sale of Silicon Valley Bank’s British subsidiary to HSBC has “saved hundreds of the U.K.’s most innovative companies,” said Dom Hallas, the executive director of Coadec, a lobbying group for Britain’s start-up sector.

Over the weekend, the heads of more than 140 tech companies in Britain sent a letter to the government warning that the insolvency of Silicon Valley Bank represented an “existential threat” to the tech sector.

The letter’s writer, Andy Cockburn, the founder of Mention Me, a marketing firm, said many British firms were at risk of not being able to make payments, including payroll, if the bank went into insolvency. Silicon Valley Bank might not have been a systemic risk for Britain’s financial system, but it was a huge risk for the country’s tech sector, he said.

Mr. Cockburn was able to move a quarter of the deposits held with Silicon Valley Bank on Friday.

Toby Mather, the founder of education app Lingumi, was not so fortunate. His company has banked solely with Silicon Valley Bank since Lingumi was founded seven and a half years ago. As the bank collapsed on Friday, Mr. Mather was trying to arrange money transfers as he was about to board a flight in Geneva.

“I was at the boarding gate trying to set up transfers for small amounts as everyone was saying large amounts weren’t going through,” he said. In the end, he could not move any deposits.

“It was life or death these several days, for us and hundreds of other start-ups,” he added.

At the time of the bank’s failure, the British subsidiary had about 6.7 billion pounds ($8.1 billion) in deposits.

“It has been a hectic and very alarming weekend,” Julian David, the chief executive of lobby group techUK, said in a statement.

By late Monday afternoon in London, customers of Silicon Valley Bank’s British subsidiary had access to their accounts again, a spokesperson for HSBC said.

The government of Prime Minister Rishi Sunak has become increasingly focused on expanding the tech industry in its search for broad and sustainable economic growth. Earlier this year, Jeremy Hunt, the chancellor of the Exchequer, said he wanted to “turn the U.K. into the world’s next Silicon Valley.”

The Treasury and Bank of England said early on Monday that it could “confirm that all depositors’ money” with Silicon Valley Bank’s British subsidiary “is safe and secure” after the sale to HSBC. “The wider U.K. banking system remains safe, sound, and well capitalized,” the central bank said.

The tech sector praised the government for finding a resolution so quickly. On Friday, the Bank of England said it would put Silicon Valley Bank into an insolvency procedure and depositors would have received only £85,000 per account. Instead HSBC bought the business for £1. And it injected £2 billion in liquidity, an HSBC spokesperson said.

Mr. Cockburn, who said he was “totally exhausted and hugely relieved,” added that he organized more than 300 tech founders and chief executives to write a thank-you letter to the chancellor.

Stacy Cowley
March 13, 2023, 11:40 a.m. ET

Western Alliance, a Phoenix regional bank whose shares went into freefall on Monday, said withdrawals have been “moderate” from the $61.5 billion in deposits it held on Thursday. The bank said its cash reserves “exceed $25 billion and are growing.”

Stacy Cowley
March 13, 2023, 11:28 a.m. ET

PacWest, another regional bank in investors' crosshairs, revealed that depositors had recently pulled around $700 million in deposits, reducing its total to $33.2 billion as of Thursday. The Los Angeles bank specializes in lending to small- and medium-sized businesses, including the kinds of venture-backed companies that dominated Silicon Valley Bank's customer base.

Stacy Cowley
March 13, 2023, 11:28 a.m. ET

In a regulatory filing on Monday, PacWest rushed to reassure customers that it had quick access to around $14 billion through its cash on hand, securities that would be easy to sell, a credit line from the Federal Home Loan Bank of San Francisco, and access to the Fed’s discount window.

Advertisement

SKIP ADVERTISEMENT
Joe Rennison
March 13, 2023, 11:18 a.m. ET

Shares of smaller banks plunged on fears of contagion.

Image
The New York Stock Exchange in New York.Credit...Hiroko Masuike/The New York Times

The stocks of U.S. regional banks plummeted on Monday, as investors reassessed how much such lenders were worth following the sudden collapse of Signature Bank and Silicon Valley Bank.

The volatile conditions led to trading in roughly a dozen banks being halted after triggering so-called circuit breakers, which are meant in part to prevent runaway crashes.

Arizona-based Western Alliance stood out as the worst mover on the day, down 80 percent in early trading. First Republic Bank tumbled 75 percent, Utah-based Zions Bancorp fell around 20 percent, Comerica tumbled about 30 percent, East West Bancorp fell 30 percent and Regions Financial, headquartered in Birmingham, Ala., was down around 10 percent.

Shares of bigger banks were less affected, but not immune. Citigroup and Wells Fargo fell over 4 percent, Bank of America fell over 3 percent, and JPMorgan Chase dipped by around 1 percent. The KBW bank index, which tracks the performance of 24 major banks, fell 10 percent, adding to sharp losses last week that erased nearly $200 billion from the aggregate value of the banks in the index.

The broader S&P 500 stock index shrugged off the worst of the pain in the banking sector, which is one of the smaller sectors of the index and therefore has less impact on the overall market. The S&P 500 rose slightly by late morning.

The crisis in the banking sector also prompted a swift re-evaluation of the number of times the Federal Reserve will raise interest rates, as fears over the resilience of the economy are expected to stay the central bank’s hand.

That led to U.S. government debt markets experiencing their biggest moves since Black Monday in 1987, which was one of the most severe market crashes on record. The two-year Treasury yield, which is sensitive to changes in interest rate expectations, fell 0.54 percentage points in morning trading, to just above 4 percent, its biggest one-day drop since October 1987.

That might not sound like a lot, but the yield normally moves in tiny fractions of a percentage point each day, and only topped 5 percent last week for the first time since mid-2007. The move on Monday recalled the biggest moves around the fall of Lehman Brothers and the tech crash of the early 2000s.

Having ramped up bets that the Fed would raise interest rates by as much as a full percentage point in the coming months, investors are now doubting whether the Fed would be that aggressive.

The Fed has used higher rates to slow the economy and lower inflation, which is also at the root of the pain being felt in the banking sector. Goldman Sachs said it believes the Fed would no longer raise interest rates at its meeting next week.

Investors’ expectations for where the Fed will set interest rates by June have fallen from 5.5 percent last week to 4.7 percent on Monday. In line with the slump in interest rates, the dollar fell 0.9 percent against a basket of currencies of America’s major trading partners.

Joe Rennison
March 13, 2023, 10:32 a.m. ET

Trading of a dozen regional bank stocks was halted on Monday morning, as wild trading conditions triggered market-wide circuit breakers, established in part to prevent runaway crashes.

Joe Rennison
March 13, 2023, 10:34 a.m. ET

Bank of Hawaii, Charles Schwab, First Republic Bank and PacWest Bancorp were among the companies whose stocks were temporarily prevented from trading.

Joe Rennison
March 13, 2023, 10:23 a.m. ET

U.S. government debt markets experienced their biggest move since "Black Monday" more than three decades ago, one of the most severe market crashes on record. The two-year Treasury yield, which is sensitive to changes in interest rate expectations, fell more than 0.5 percentage points, to just above 4 percent, its biggest one-day drop since October 1987.

Joe Rennison
March 13, 2023, 10:24 a.m. ET

That might not sound like a lot but the yield normally moves in just tiny fractions of a percentage point each day. The fall on Monday recalled the biggest moves around the fall of Lehman Brothers and the tech crash of the early 2000s.

Advertisement

SKIP ADVERTISEMENT
Emily Flitter
March 13, 2023, 10:16 a.m. ET

Sunday’s moves by regulators to shore up the U.S. banking system did not seem to be helping calm investors’ concerns about another large bank, First Republic Bank. Investors have been sour on the San Francisco-based bank, which had $213 billion in assets at the end of 2022, ever since it began to warn its shareholders that the Federal Reserve’s interest rate hikes were hurting its profitability.

Emily Flitter
March 13, 2023, 10:19 a.m. ET

Shares of 14th largest U.S. bank, founded in 1985, lost 40 percent of their value over the course of last year. On Monday, the stock lost another 70 percent. While a bank’s share price has nothing to do with whether it is well capitalized, First Republic’s stock price plunge has stoked fears among depositors.

Emily Flitter
March 13, 2023, 10:20 a.m. ET

Its management woes haven't helped. In 2022, First Republic saw major turnover among its top executives, with its founder and chief executive, Jim Herbert, stepping away from the bank in January for medical leave and his co-chief executive and presumptive successor, Hafize Gaye Erkan, resigning early that month to join a real estate finance company. Within two weeks of her resignation, First Republic’s chief operating officer left because of a family tragedy.

Emily Flitter
March 13, 2023, 11:26 a.m. ET

Barney Frank, the former Massachusetts congressman who served as chairman of the House Financial Services Committee from 2007 to 2011, was a director of Signature Bank. Mr. Frank’s interest in the bank, whose board he joined in 2015, was because of its business making loans to developers building affordable housing and accessing the federal low income housing tax credit, a system that Mr. Frank championed during his time in Congress. Mr. Frank did not return a call late Sunday seeking comment.

Image
Credit...Anna Moneymaker/Getty Images
Matthew Goldstein
March 13, 2023, 10:14 a.m. ET

Tyler Gellasch, president of Healthy Markets Association, an advocate for greater transparency in financial markets, observed that Silicon Valley Bank and Signature Bank had similar profiles, in the sense that one was tied closely to the tech start-up community and the other was a big banker to New York’s legal and real estate industries.

Matthew Goldstein
March 13, 2023, 10:14 a.m. ET

So even if there wasn’t a widespread systemic risk, the two banks were central enough to certain industries that bank runs would be extremely destabilizing. “If Signature happened in a vacuum we probably don’t see this regulatory action,” Mr. Gellasch said. “On each coast we have bank failures that are uniquely focused on very wealthy and very connected industries.”

Joe Rennison
March 13, 2023, 9:54 a.m. ET

Some very large moves for a handful of bank stocks on Monday morning. First Republic Bank tumbled 65 percent as markets opened for trading. Western Alliance swiftly overtook the bank as the worst mover on the day, down 75 percent. Zions Bank fell 36 percent, East West Bancorp fell 23 percent and Regions Financial is down over 22 percent. Shares of Charles Schwab dropped nearly 20 percent.

Joe Rennison
March 13, 2023, 9:54 a.m. ET

The prices are swinging around, changing rapidly as investors reassess how much some of these companies are worth following the weekend turmoil.

Peter Baker
March 13, 2023, 9:43 a.m. ET

Reporting from Washington

Biden assures Americans: ‘Our banking system is safe’.

Image
President Biden made remarks on maintaining a resilient banking system in the Roosevelt Room of the White House on Monday.Credit...Doug Mills/The New York Times

WASHINGTON — President Biden sought on Monday morning to head off any crisis of confidence following the failure of two major banks in recent days, insisting that Americans can have faith in the system even as he emphasized that the rescue does not constitute a taxpayer bailout.

In a brief televised statement from the White House shortly before the markets opened in the United States, Mr. Biden declared that the government was responding decisively to the collapse of Silicon Valley Bank and Signature Bank in a way that would protect depositors without rewarding risk-taking executives and investors.

“Americans can rest assured that our banking system is safe. Your deposits are safe,” the president said. “Let me also assure you we will not stop at this; we’ll do whatever is needed.”

Mr. Biden said that the government would make certain that deposits would be available on Monday so that small businesses can pay their workers and workers can pay their bills. “Your deposits will be there when you need them,” he said.

But he sought to distinguish his intervention from the taxpayer-financed bailout during the financial crash of 2008-09, when the administrations of George W. Bush and Barack Obama steered hundreds of billions of dollars to rescue the bank industry following a systemic crisis. Eventually, the banks repaid the money, but the notion that everyday taxpayers had to rescue wealthy bankers rankled voters and arguably shifted politics in a way that continues to reverberate to this day.

“This is an important point: no losses will be borne by the taxpayers,” Mr. Biden, who was Mr. Obama’s vice president during the latter stage of that earlier crisis, said in his statement on Monday morning. “Let me repeat that: No losses will be borne by the taxpayers.”

The cost to make depositors whole will be financed by fees paid by banks into the Federal Deposit Insurance Corporation, or F.D.I.C. A separate loan program that the Federal Reserve has opened to help keep money flowing through the banking system will be backed by taxpayer money. In a statement on Sunday, the Fed said it “does not anticipate that it will be necessary to draw on these backstop funds.”

Mr. Biden insisted he will impose accountability for the failures. “The managers of these banks will be fired,” he said, adding: “No one is above the law.” And Mr. Biden said that he will ask Congress and banking regulators to consider rule changes “to make it less likely that this kind of bank failure would happen again.”

Advertisement

SKIP ADVERTISEMENT
Anupreeta Das
March 13, 2023, 9:39 a.m. ET

Zions Bank, a midsize bank whose shares have been hammered, focuses on small and midzise businesses. With around $90 billion in assets, Zions bills itself as a “leader” in public finance advisory services. When the SBA launched its Paycheck Protection Program during the pandemic, Zions was one of the largest loan providers.

Anupreeta Das
March 13, 2023, 9:39 a.m. ET

Founded about 150 years ago, Utah-based Zions was among the institutions that argued a few years ago that midsize banks shouldn’t be considered systemically important. Harris Simmons, the bank’s chief executive, argued in 2017 that Zions was too small to impact the financial system or the economy if it were to falter.

Anupreeta Das
March 13, 2023, 10:10 a.m. ET

Shares of Zions were nearly 40 percent down when the market opened.

Joe Rennison
March 13, 2023, 9:35 a.m. ET

Stocks slumped over 1.1 percent as markets opened for trading on Monday morning, with the index dragged lower by a sharp decline in some regional bank stocks.

Image
Credit...Casey Steffens for The New York Times
Anupreeta Das
March 13, 2023, 9:32 a.m. ET

Signature Bank had a pretty big business in cryptocurrencies, inviting customers to deposit their holdings of digital assets. But it wasn’t the only one. While some of the biggest banks have largely steered clear, other banks saw crypto as an opportunity.

Anupreeta Das
March 13, 2023, 9:32 a.m. ET

Last year, Bank of New York Mellon launched a so-called digital asset custody platform -- essentially, bank accounts for other banks -- for Bitcoin and Ether. Northern Trust and U.S. Bank have said that they would offer cryptocurrency custody services to money managers.

Image
Credit...Spencer Platt/Getty Images
Anupreeta Das
March 13, 2023, 9:32 a.m. ET

As for New York’s Signature Bank, last year, the bank said its digital asset-related client deposits stood at $16.52 billion. Signature was one of the few financial institutions that had opened its doors to taking deposits of crypto assets, a business it entered into in 2018. When the crypto bubble burst, the value of those deposits fell, and Signature’s exposure to that market hurt it in the end.

Image
Credit...Casey Steffens for The New York Times
Alan Rappeport
March 13, 2023, 9:24 a.m. ET

Reporting from Washington

Signature Bank might not be a household name, but it does have a legend from the world of financial regulation on its board of directors. Former congressman Barney Frank, one of the authors of the Dodd-Frank Act, has been a board member since 2015.

Alan Rappeport
March 13, 2023, 9:24 a.m. ET

Reporting from Washington

Frank’s biography on Signature’s website notes that he was “instrumental in crafting the short-term $550 billion rescue plan in response to the nation’s 2008-2009 financial crisis.”

Advertisement

SKIP ADVERTISEMENT
Joe Rennison
March 13, 2023, 9:15 a.m. ET

U.S. stocks are giving up earlier gains and sliding lower. Stock futures, which allow investors to bet on markets before the official start of trading at 9:30am Eastern, have dropped nearly 1 percent.

Image
Credit...Casey Steffens for The New York Times
Joe Rennison
March 13, 2023, 9:16 a.m. ET

Investors have also reined in expectations for the number of times the Fed will raise interest rates. The Fed has used higher rates to slow the economy and lower inflation but those moves are also at the root of the pain being felt in the banking sector.

Peter Baker
March 13, 2023, 9:09 a.m. ET

Reporting from Washington

Biden wraps up after about five minutes. His main points are aimed less at bankers than at investors and everyday Americans: One, don’t panic. Two, no taxpayer bailout. Three, there will be accountability. And four, future action will be taken to keep this from happening again.

Peter Baker
March 13, 2023, 9:05 a.m. ET

Reporting from Washington

Biden suggests that he will seek stronger regulations on banks, without specifying exactly what he has in mind.

Deborah B. Solomon
March 13, 2023, 9:18 a.m. ET

Reporting from Washington

It’s worth noting that a 2018 bill that relaxed post-financial crisis regulations on mid-sized banks passed with bipartisan support.

Peter Baker
March 13, 2023, 9:04 a.m. ET

Reporting from Washington

Sensitive to the politics of the moment, Biden emphasizes that taxpayer money will not be used to bail out the bank: “No losses will be borne by the taxpayers. Let me repeat that. No losses will be borne by the taxpayers.”

Advertisement

SKIP ADVERTISEMENT
Peter Baker
March 13, 2023, 9:03 a.m. ET

Reporting from Washington

President Biden assures Americans: “You can have confidence that the banking system is safe. Your deposits will be there when you need them.”

Jeanna Smialek
March 13, 2023, 8:54 a.m. ET

Reporting from Washington

The Federal Reserve’s path is murkier after the banking blowup.

Image
Jerome H. Powell, chair of the Federal Reserve, testifying before a House committee last week.Credit...Julia Nikhinson for The New York Times

Listen to This Article

The Federal Reserve’s hotly anticipated March 22 interest rate decision is just a week and a half away, and the drama that swept the banking and financial sector over the weekend is drastically shaking up expectations for what the central bank will deliver.

The Fed had been raising interest rates rapidly to try to contain the most painful burst of inflation since the 1980s, lifting them to above 4.5 percent from near zero a year ago. Concern about rapid inflation prompted the central bank to make four consecutive 0.75-point increases last year before slowing to a half point in December and a quarter point in February.

Before this weekend, investors believed there was a substantial chance that the Fed would make a half-point increase at its meeting next week. That step up was seen as an option because job growth and consumer spending have proved surprisingly resilient to higher rates — prompting Jerome H. Powell, the Fed chair, to signal just last week that the Fed would consider a bigger move.

But investors and economists no longer see that as a likely possibility.

Three notable banks have failed in the past week alone as Fed interest rate increases ricochet through the technology sector and cryptocurrency markets and upend even usually staid bank business models.

Regulators unveiled a sweeping intervention on Sunday evening to try to prevent panic from coursing across the broader financial system, with the Treasury, Federal Deposit Insurance Corporation and Fed saying depositors at the failed banks will be paid back in full. The Fed announced an emergency lending program to help funnel cash to banks facing steep losses on their holdings because of the change in interest rates.

The tumult — and the risks that it exposed — could make the central bank more cautious as it pushes forward.

Investors have abruptly downgraded how many interest rate moves they expect this year. After Mr. Powell’s speech last week opened the door to a large rate change at the next meeting, investors had sharply marked up their 2023 forecasts, even penciling in a tiny chance that rates would rise above 6 percent this year. But after the wild weekend in finance, they see just a small move this month and expect the Fed to cut rates to just above 4.25 percent by the end of the year.

Economists at J.P. Morgan said the situation bolstered the case for a smaller, quarter-point move this month.

“I don’t hold that view with tons of confidence,” said Michael Feroli, chief U.S. economist at J.P. Morgan, explaining that a move this month was conditional on the banking system’s functioning smoothly. “We’ll see if these backstops have been enough to quell concerns. If they are successful, I think the Fed wants to continue on the path to tightening policy.”

Goldman Sachs economists no longer expect a rate move at all. While Goldman analysts still think the Fed will raise rates to above 5.25 percent this year, they wrote on Sunday evening that they “see considerable uncertainty” about the path.

“I think the Fed is going to want to wait awhile to see how this plays out,” said William English, a former director of the monetary affairs division at the Fed who is now at Yale. He explained that tremors in the banking system could spook lenders, consumers and businesses — slowing the economy and meaning that the Fed had to do less to cool the economy and lower inflation.

“If it were me, I’d be inclined to pause,” Mr. English said.

Other economists went even further: Nomura, saying it was unclear whether the government’s relief program was enough to stop problems in the banking sector, is now calling for a quarter-point rate cut at the coming meeting.

The Fed will receive fresh information on inflation on Tuesday, when the Consumer Price Index is released. That measure is likely to have climbed 6 percent over the year through February, economists in a Bloomberg forecast expected. That would be down slightly from 6.4 percent in a previous reading.

But economists expected prices to climb 0.4 percent from January after food and fuel prices, which jump around a lot, are stripped out. That pace would be quick enough to suggest that inflation pressures were still unusually stubborn — which would typically argue for a forceful Fed response.

The data could underline why this moment poses a major challenge for the Fed. The central bank is in charge of fostering stable inflation, which is why it has been raising interest rates to slow spending and business expansions, hoping to rein in growth and cool price increases.

But it also charged with maintaining financial system stability, and higher interest rates can reveal weaknesses in the financial system — as the blowup of Silicon Valley Bank on Friday and the towering risks for the rest of the banking sector illustrated. That means those goals can come into conflict.

Subadra Rajappa, head of U.S. rates strategy at Société Générale, said on Sunday afternoon that she thought the unfolding banking situation would be a caution against moving rates quickly and drastically — and she said instability in banking would make the Fed’s task “trickier,” forcing it to balance the two jobs.

“On the one hand, they are going to have to raise rates: That’s the only tool they have at their disposal” to control inflation, she said. On the other, “it’s going to expose the frailty of the system.”

Ms. Rajappa likened it to the old saying about the beach at low tide: “You’re going to see, when the tide runs out, who has been swimming naked.”

Some saw the Fed’s new lending program — which will allow banks that are suffering in the high-rate environment to temporarily move to the Fed a chunk of the risk they are facing from higher interest rates — as a sort of insurance policy that could allow the central bank to continue raising rates without causing further ruptures.

“The Fed has basically just written insurance on interest-rate risk for the whole banking system,” said Steven Kelly, senior research associate at Yale’s program on financial stability. “They’ve basically underwritten the banking system, and that gives them more room to tighten monetary policy.”

Joe Rennison contributed reporting.

Audio produced by Parin Behrooz.

Alan Rappeport
March 13, 2023, 8:50 a.m. ET

Reporting from Washington

Senator Elizabeth Warren of Massachusetts is out with an opinion essay in The New York Times blaming lawmakers — Republicans and Democrats — along with the Federal Reserve for rolling back financial regulations in 2018. “Had Congress and the Federal Reserve not rolled back the stricter oversight, S.V.B. and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks,” she argues.

Advertisement

SKIP ADVERTISEMENT
Deborah B. Solomon
March 13, 2023, 8:29 a.m. ET

Reporting from Washington

One thing to note as the blame game begins is that regulators have been issuing guidance to banks, warning about their exposure to crypto assets. Last week, Michael Barr, the Fed's vice chair for supervision, was pretty blunt: “We would likely view it as unsafe and unsound for banks to directly own crypto-assets on their balance sheets.”

Deborah B. Solomon
March 13, 2023, 8:29 a.m. ET

Reporting from Washington

On Feb. 23, banking agencies jointly released a statement “highlighting liquidity risks to banking organizations associated with certain sources of funding from crypto-asset-related entities and some effective practices to manage those risks.”

Deborah B. Solomon
March 13, 2023, 8:29 a.m. ET

Reporting from Washington

Signature Bank became one of the few banks to welcome crypto deposits, just before the industry blew up last year.

Sameer Yasir
March 13, 2023, 8:27 a.m. ET

Reporting from New Delhi

The fallout from Silicon Valley Bank’s collapse spreads to an Indian tech company.

Image
Nazara Technologies headquarters in Mumbai in 2021. The company said that operations at its subsidiaries were not affected by the American bank’s collapse. Credit...Indranil Mukherjee/Agence France-Presse — Getty Images

As regulators moved to limit the fallout from the demise of Silicon Valley Bank, the fortunes of a mobile gaming company in India showed the lender’s global reach.

Shares in the company, Nazara Technologies, fell as much as 6.5 percent on Monday after the company said two of its subsidiaries had accounts with Silicon Valley Bank, which collapsed on Friday. The two units had together more than $7.7 million in balances at the failed bank.

Indian officials, like their counterparts elsewhere in the world, have tried to calm investors about any potential contagion in the nation’s banking industry. They have also said they were meeting with representatives from India’s start-up community in the coming days to understand the impact on them.

For Nazara, “the situation with SVB remains fluid,” it said in a statement, but emphasized that operations at its subsidiaries were not affected by the American bank’s collapse. The company, whose portfolio includes games based on Chhota Bheem, a mythological character in a popular children’s cartoon, said that it had enough funds. The stock had regained most of its losses by late afternoon in Mumbai.

The regulatory response in the United States had also soothed the concerns of some investors and customers of the bank. One such customer was Ruchit Garg, who heads Harvesting Farmer Network, an agriculture technology platform, which had deposits at Silicon Valley Bank. Mr. Garg said that he was relieved his company’s deposits were backed by U.S. regulators.

Apart from a few start-ups, Mr. Garg said, the bank’s collapse is unlikely to have a severe impact on the Indian economy. The local stock market may suffer temporarily, he said, adding, “It makes people nervous, and market is all about emotions.”

India’s main stock benchmarks, the Sensex and the Nifty 50, were each down more than 1.5 percent on Monday afternoon.

Deborah B. Solomon
March 13, 2023, 8:02 a.m. ET

Reporting from Washington

President Biden’s remarks on the banking turmoil have been moved to 9 a.m., per the White House.

Advertisement

SKIP ADVERTISEMENT
Jason Karaian
March 13, 2023, 7:51 a.m. ET

Reporting from London

Regional bank stocks tumbled in premarket trading, suggesting a rocky open to trading for lenders that some investors believe share characteristics with Silicon Valley Bank and Signature Bank. First Republic Bank is down more than 60 percent, Western Alliance Bancorporation has lost more than 50 percent and PacWest Bancorp is down nearly 40 percent.

Image
Credit...Casey Steffens for The New York Times
Kevin Granville
March 13, 2023, 7:24 a.m. ET

European shares are down across the board today but banks are bearing the brunt. Among the steepest falls: Credit Suisse, down 8 percent; Commerzbank, down 9.2 percent; Société Général, down 5.7 percent; Unicredit, down 6.6 percent; and Barclays, down 4 percent. HSBC, which acquired the British subsidiary of Silicon Valley Bank for 1 pound, was 3.9 percent lower.

Keith Bradsher
March 13, 2023, 7:21 a.m. ET

Reporting from Beijing

Two biopharmaceutical companies headquartered in Shanghai, Zai Lab and Everest Medicines, each disclosed on Monday that they had small percentages of their cash at Silicon Valley Bank. But both said the sums of money involved were not large enough to affect their operations.

Jeanna Smialek
March 13, 2023, 6:38 a.m. ET

Reporting from Washington

We’re just a week and a half away from the Federal Reserve’s already hotly-anticipated March 22 rate decision, and the drama in the banking and financial sector over the weekend is drastically shaking up expectations.

Jeanna Smialek
March 13, 2023, 6:38 a.m. ET

Reporting from Washington

It seems like every investor and analyst has a view. But we won’t hear from Fed officials themselves, because we are now in their pre-meeting quiet period, when they do not deliver public remarks on monetary policy.

Jeanna Smialek
March 13, 2023, 6:54 a.m. ET

Reporting from Washington

Jerome Powell, the Fed chair, had just last week opened the door to a large rate move this month to tame what appeared to an unexpectedly hot economy. Investors had sharply marked up their 2023 rate forecasts on those comments. But after the weekend, they now see just a small move this month and expect the Fed to cut rates back to their current level by the end of the year.

Advertisement

SKIP ADVERTISEMENT
Eshe Nelson
March 13, 2023, 6:37 a.m. ET

Reporting from London

German regulator BaFin has ordered a moratorium on Silicon Valley Bank’s German branch, blocking payments to and from customers. The regulator said the branch doesn’t pose a threat to Germany’s financial stability. The branch had less than 800 million euros in assets at the end of last year, BaGin said. It had a lending business in Germany but not a deposit business.

Image
Credit...Michael Probst/Associated Press
Tiffany May
March 13, 2023, 5:39 a.m. ET

Roku, Roblox: Here are some of the companies that had money at Silicon Valley Bank.

Image
David Baszucki, founder and CEO of Roblox, at the company’s developer conference in 2019.Credit...Ian Tuttle/Getty Images for Roblox

Silicon Valley Bank, which described itself as the “financial partner of the innovation economy,” provided services to nearly half of all venture-backed technology and life-science companies in the United States, according to its website.

Several companies disclosed in filings significant deposits in the bank. Concerned about making payroll, companies raced to transfer deposits out of the bank.

On Sunday, regulators in the United States took the unusual step of guaranteeing all deposits at the lender. Typically, only deposits up to $250,000 are insured by the Federal Deposit Insurance Corporation.

Here are some of Silicon Valley Bank’s clients:

  • Roku, the maker of the streaming media player, said in a U.S. Securities and Exchange Commission filing on Friday that roughly $487 million, or 26 percent, of its $1.9 billion in cash was tied up with Silicon Valley Bank. Its deposits were “largely uninsured,” Roku said, and it did not know “to what extent” it would be able to recover them, but added that it believed it had enough cash for the next twelve months.

  • iRhythm Technologies, which sells a wearable device that monitors cardiac patterns, said in a filing on Monday that about one-fourth of its $213.1 million cash holdings were in operating accounts held at Silicon Valley Bank. It also had a $35 million term loan outstanding with SVB. The company added that it had $134.3 million in short-term investments held in accounts outside of SVB that could be available in the near term, if needed.

  • Roblox, the gaming company, said in a filing that about 5 percent of its $3 billion in cash and securities balance were held at the bank, but added that it would not affect its daily operations.

  • Vox Media, the publisher of New York Magazine and The Verge, has a substantial concentration of cash at Silicon Valley Bank and used credit cards that were issued by the bank. Those credit cards ceased to work on Friday.

  • Circle, a blockchain-based payments company, wrote on Twitter on Saturday that $3.3 billion of its USD Coin cryptocurrency was still held by the bank.Silicon Valley Bank was one of six banks the company used to manage roughly a quarter of the USDC reserves it kept in cash, Circle added.

Advertisement

SKIP ADVERTISEMENT