- Bailouts-on-Demand or Saving SVB -
Sunday evening, the feds showed their cards.
Joint action from the Department of the Treasury, the Federal Reserve, and the FDIC laid out a path towards resolution. Regulators hope this will stymie additional bank runs.
In a statement, regulators confirm that all depositors, both insured and uninsured, of SVB and Signature will have full access to deposits as of Monday morning, with no losses of the resolution being borne by taxpayers. Any shortfalls from asset sales to cover uninsured depositor claims will instead be “recovered by a special assessment on banks, as required by law.”
Signature Bank was revealed to have been taken over by regulators in the announcement, with a similar program announced for their insured and uninsured depositors, marking the third bank to fail this week and the third largest ever in the United States.
Simultaneously came a new Fed program, called the Bank Term Funding Program (BTFP). How does this new alphabet soup lending program work?
The BTFP will offer term loans to banks, savings associations, credit unions, and other eligible depository institutions on US Treasuries, agency debt and MBS, and whatever “other qualifying assets” means as collateral.
The kicker? The Fed is lending out on these securities at par!
Forget about all those unrealized losses on HTM securities banks have accrued: the Fed is stepping in and lending not on the market value of these instruments, but on the future promised repayment.
Essentially, Jerome Powell is offering undercollateralized loans to banking institutions. Across the pond in Great Britain and absent the powers imbued by the American money printer, the UK’s Finance Minister scrambled to piece together a deal to protect the nation’s startup industry, disrupted by the collapse of SVB UK. Thankfully, HSBC’s UK division announced a purchase of the bank, for a meager £1.
