Treasury Secretary Janet Yellen assured the markets that the federal government is dedicated to protecting deposits on the back of two bank failures.
However, she noted that they don’t want to set this precedent for all future bank failures.
What Could Change After the Two Bank Failures?
The demise of Silicon Valley Bank and Signature Bank led the bank regulators to rush to make all deposits whole. This includes deposits above the FDIC insurance threshold through a special fund.
CNBC quoted Janet Yellen on Thursday: “Our banking system remains sound and Americans can feel confident that their deposits will be there when they need them.”
The Federal Reserve also temporarily loosened its borrowing requirements as part of its emergency measures following the crash.
Banks seeking short-term financing can use the so-called discount window under more lenient conditions.
However, Republican members expressed concern about whether this decision would set a standard for guaranteeing all deposits from now on. But, the economist acknowledged that this might not remain the case in the future.
She explained that uninsured deposits would only be covered if their failure “would create systemic risk and significant economic and financial consequences.”
Notably, the report observed that small tech companies, venture capital firms, and entrepreneurs with working money made up most of SVB’s clients. According to reports, 94% of SVB’s assets were not insured.
Another possible reason why customers are flocking to bigger banks. Major US banks like JPMorgan and Citigroup received many account opening requests over the smaller lenders. BeInCrypto previously cited reports that confirmed this migration.
Congress is presently debating a number of legislative ideas designed to stop the next Silicon Valley Bank-style collapse. Meanwhile, both banks are receiving acquisition bids.
Banking Situation in the U.S. and Impact on Crypto
Senator Elizabeth Warren took to Twitter to voice her displeasure with the government’s involvement in the rescue of ‘crypto’ platforms. Based on industry sources, it was rumored that buyers of Signature might be asked to divest in crypto verticals.
Meanwhile, to prevent another bank from joining the SVB and Silvergate collapse, large U.S. institutions came to its rescue.
First Republic Bank received $30 billion in funding on Thursday after its shares tumbled through the week. According to reports, some of the biggest names in American finance, including JPMorgan Chase & Co, Citigroup Inc, Bank of America Corp, and Goldman Sachs, intervened to save the regional bank.
That said, regulators and decision-makers are examining how social media and digital messaging may have contributed to the crash of these mid-size banks. And whether the impact of psychological banking has weighed on conventional banking in the digital age.
The rise in web3 activity and the high market capitalization of cryptocurrencies have also been pointed to as causes of the collapse, particularly because the now-defunct Silvergate Bank and Signature Bank were well-known for their extensive connections to the industry.
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