U.S. authorities are working over the weekend to take “substantial action” to limit ripple effects across the nation’s banking system following Silicon Valley Bank’s sudden collapse on March 10.
Officials in Joe Biden’s administration assessed the impact of the bank failures over the weekend and are keeping tabs on venture capital firms and regional lenders, Reuters reported, citing unnamed sources.
“It will be a substantive action, not just a slogan,” a source told Reuters.
In a speech on March 6, Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), addressed the risks associated with the US rally. “The current interest rate environment has had a huge impact on the profitability and risk profile of banks’ funding and investment strategies,” he noted before adding:
“Total of these unrealized losses (including available-for-sale or held-to-maturity securities) is approximately $620 billion by the end of 2022. Unrealized losses on securities significantly reduce the equity reported by the banking industry.”
According to Grunberg, the “good news” about the billions in unrealized losses is that “banks are generally in a strong financial position”.
“On the other hand, unrealized losses impair the bank’s ability to meet unexpected liquidity needs in the future. This is because the sale of securities generates less cash than initially expected, and the sale often results in a reduction in regulatory capital”
As previously reported by Cointelegraph, Silicon Valley Bank (SVB) could affect regional banks across the United States, putting trillions of dollars at risk of a bank run. U.S. Treasury Secretary Janet Yellen is working with regulators to resolve the Silicon Valley bank failure and protect investors, but is not considering a large bailout.
Yellen said regulators are “very aware of the problems that depositors will have, many of which are small businesses that employ people across the country. Of course, this is a significant problem and is working with regulators to try to address them”
The FDIC began auctioning off the bank on the evening of March 11, according to a Bloomberg report. Bidding was reportedly only open for a few hours before the week ended later Sunday.
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