Fed’s Bowman: Banking system remains resilient in wake of SVB, Signature Bank closures

Regulators, over the weekend, emphasized depositors 'will be made whole'; FDIC fund to pick up any losses

March 14, 2023 FDIC, Other, The Fed 0

Noting the steps federal banking regulators have taken in recent days to limit the direct and indirect U.S. financial system risks of the closures of Silicon Valley Bank (SVB) and Signature Bank, the Federal Reserve Board’s community bank representative on Tuesday reiterated that the banking system remains “resilient and on a solid foundation.”

In remarks prepared for a banking conference in Honolulu in which she focused on the “imperative of fostering innovation in the banking system,” Fed Gov. Michelle Bowman first recapped the actions taken by regulators in response to the March 10 closure of SVB by the California Department of Financial Protection and Innovation; and the March 12 closure of Signature Bank by the New York Department of Financial Services. The Federal Deposit Insurance Corp. (FDIC) was named receiver of both institutions and in recent days announced the creation of two bridge banks that will continue to serve the closed institutions’ depositors.

Bowman, in her speech (The Innovation Imperative: Modernizing Traditional Banking), reiterated that:

  • The Fed Board on Sunday announced that it will make additional funding available to eligible depository institutions (banks and credit unions) through a newly created Bank Term Funding Program. This program will offer one year loans to institutions that pledge U.S. Treasury securities, agency debt and mortgage-backed securities, and other qualifying assets as collateral. The facility will provide an additional source of liquidity to banks and eliminate the need for institutions to quickly sell these securities during a time of stress.
  • The FDIC has taken action to protect all depositors, including uninsured depositors, of both Silicon Valley Bank and Signature Bank. Bowman noted that as of Monday morning (March 13), these depositors were able to access all of their funds on deposit with these banks.

Bowman reminded that these actions were approved by the FDIC, the Fed Board and the Treasury Secretary.

The FDIC has noted that SVB as of Dec. 31, 2022, had approximately $209.0 billion in total assets and about $175.4 billion in total deposits and that Signature Bank had total assets of $110.4 billion and total deposits of $88.6 billion.

Treasury Secretary Janet Yellen, Fed Chair Jerome Powell and FDIC Chairman Martin Gruenberg issued a joint statement Sunday affirming that all depositors of SVB and Signature Bank will be made whole.

“Shareholders and certain unsecured debtholders will not be protected. Senior management has also been removed,” the three said. “Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”

President Joe Biden (D), in public remarks, has reiterated that depositors of the two closed banks remain fully protected and that taxpayers will not foot the bill.

The Treasury-led Financial Stability Oversight Council (FSOC) met by videoconference March 12 to discuss the actions taken with respect to SVB and Signature Bank. Council members present included the heads of all the federal bank and credit union regulatory agencies as well as the Consumer Financial Protection Bureau, Securities and Exchange Commission, Commodity Futures Trading Commission; and other members.

The Fed also has announced that Fed Vice Chair for Supervision Michael Barr will be undertaking a review of the supervision and regulation of SVB “in light of its failure.”

The FDIC on Tuesday said all contracts in place prior to the two banks’ closure have transferred to the bridge banks and must continue to be honored.

Following are links to federal officials’ recent statements regarding SVB and Signature Bank: