US Treasury Department, Fed unveil action plan on Silicon Valley Bank fallout

“Taking decisive actions to protect the US economy by strengthening public confidence in our banking system,” said the US Treasury Department and Federal Reserve (Fed) in joint statements on the action plan to defend the Silicon Valley Bank (SVB).

Key quotes

Boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the fdic to complete its resolution of Silicon Valley Bank.

No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.

We are also announcing a similar systemic risk exception for signature bank, New York, which was closed today by its state chartering authority.

All depositors of this institution will be made whole.

Signature shareholders and certain unsecured debt holders will not be protected.

Signature senior management has been removed.

The Federal Reserve board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors.

Banking system remains resilient and on a solid foundation.

Any signature bank losses to the deposit insurance fund to support uninsured depositors will be recovered by a special assessment on banks.

Fed will make available additional funding to eligible depository institutions to help assure banks can meet depositors' needs.

To provide liquidity to US depository institutions, each Federal Reserve Bank would make advances to eligible borrowers, taking as collateral certain types of securities

Treasury department, using the exchange stabilization fund, would provide $25 billion as credit protection to the federal reserve banks in connection with bank term funding program.

Today's actions demonstrate US commitment to take 'necessary steps' to ensure that depositors' savings remain safe.

Eligible collateral includes any collateral eligible for purchase by the federal reservebanks in open market operations.

Rate for term advances will be the one-year overnight index swap rate plus 10 basis points; The rate will be fixed for the term of the advance on the day the advance is made.

Collateral valuation will be par value; margin will be 100% of par value.

Advances can be requested under the program until at least March 11, 2024.

Advances made under the program are made with recourse beyond the pledged collateral to the eligible borrower.

Market sentiment improves

With the US authorities are in action mode to defend the world’s largest economy from another financial crisis, the market’s risk appetite improved after a disappointment on Friday.

Also read: Source: US marshalling 'material action' to stem SVB fallout – Reuters