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The U.S. takes emergency measures to protect all deposits at Silicon Valley Bank

A worker tells people that the Silicon Valley Bank (SVB) headquarters in Santa Clara, Calif., is closed on March 10, 2023. Federal regulators took extraordinary measures on Sunday to backstop all deposits at SVB after the lender's spectacular collapse.
Justin Sullivan
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Getty Images
A worker tells people that the Silicon Valley Bank (SVB) headquarters in Santa Clara, Calif., is closed on March 10, 2023. Federal regulators took extraordinary measures on Sunday to backstop all deposits at SVB after the lender's spectacular collapse.

Updated March 12, 2023 at 9:23 PM ET

The Biden administration has announced that customers of Silicon Valley Bank will have full access to their deposits, an extraordinary move by federal officials to backstop billions of dollars in uninsured money amid fears that the bank's collapse could lead to greater panic.

Federal regulators said Sunday that it was taking the emergency measures to prevent contagion at other small and regional banks in the wake of Silicon Valley Bank's sudden implosion.

The rescue plan involves tapping a deep reserve of bank-funded federal insurance money, not taxpayer dollars, according to officials.

The regulators said customers of Silicon Valley Bank will be able to access all of their money starting Monday.

Deposits at Signature Bank, which was shut by New York regulators on Sunday, would also be backstopped.

The closure of Signature represents the third U.S. bank to topple in just one week, after California-based Silvergate, a top lender in the crypto market, decided to wind down its operations and pay back depositors.

"Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system," federal officials said in the statement on Sunday. "This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth."

U.S. Treasury Secretary Janet Yellen takes her seat as she arrives for a House Ways and Means Committee hearing on Capitol Hill in Washington, D.C., on March 10, 2023. On Sunday, the Treasury Department and other financial regulators including the Federal Reserve, announced emergency measures to protect depositors at Silicon Valley Bank and Signature Bank.
Drew Angerer / Getty Images
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U.S. Treasury Secretary Janet Yellen takes her seat as she arrives for a House Ways and Means Committee hearing on Capitol Hill in Washington, D.C., on March 10, 2023. On Sunday, the Treasury Department and other financial regulators including the Federal Reserve, announced emergency measures to protect depositors at Silicon Valley Bank and Signature Bank.

U.S. steps come amid contagion fears

Until the announcement, there was widespread fear among depositors of Silicon Valley Bank, since federal insurance covers accounts up to $250,000 and more than 90% of the bank's deposits were above that cap. Most customers of the bank were tech startups and firms tied to the venture capital world.

But administration officials and financial regulators worked through the weekend, according to the senior Treasury Department official, to shore up confidence in the banking sector before Monday.

Banking analysts worried that Silicon Valley Bank's rapid insolvency would trigger uncertainty among depositors of other small and regional banks, leading federal officials to take steps on Sunday aimed at fending off other potential bank runs that could inflict deeper economic damage.

In a separate statement, President Biden said those "responsible for this mess" will be held accountable. He plans on delivering remarks on Monday on how the U.S. can continue to maintain a resilient banking system.

A notice informing of Silicon Valley Bank's closure hangs at the bank's headquarters in Santa Clara, California on March 10, 2023. The bank suffered a swift demise after fears of its financial health led to a rush of depositors looking to withdraw their funds.
Noah Berger / AFP via Getty Images
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AFP via Getty Images
A notice informing of Silicon Valley Bank's closure hangs at the bank's headquarters in Santa Clara, California on March 10, 2023. The bank suffered a swift demise after fears of its financial health led to a rush of depositors looking to withdraw their funds.

Stock and bond investors of SVB will not be protected

The move on Sunday effectively waives the $250,000 ceiling on federal deposit insurance for Silicon Valley Bank and Signature Bank.

The deposits will be supported by insurance funds, not taxpayer money.

A senior Treasury official on Sunday stressed Silicon Valley Bank's investors will not be provided with any relief by Sunday's actions.

"The bank's equity and bondholders are being wiped out. They took a risk as owners of those securities. They will take the losses," the official said.

The Federal Reserve also announced on Sunday that it is taking new steps to make funding available to banks to cushion any potential risk prompted by Friday's collapse of Silicon Valley Bank.

"Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system," the officials said on Sunday.

Regulators act amid fears of contagion

The rapid meltdown of Silicon Valley Bank happened at a stunning pace, as did the government's response.

The lender's stock price plummeted on Thursday, and trading of its shares was halted early on Friday. Hours later, California banking regulators shuttered the bank, and appointed the Federal Deposit Insurance Corporation as receiver over nearly $175 billion in customer deposits.

During the pandemic, the tech sector's boom led to a surge in deposits at Silicon Valley Bank. The bank then invested a large chunk of the cash into long-term government securities.

The value of those securities began to drop after the Federal Reserve started raising interest rates aggressively to fight inflation.

Those rate hikes came just as there was contraction in funding for startups. Tech companies were spending company cash fast, and they were having a hard time replenishing the funding in the face of a challenging fundraising market.

That, in turn, led to startups pulling out more and more cash from Silicon Valley Bank, forcing the lender to sell part of its bond holds at a steep loss of $1.8 billion.

The announcement of the bond sale sparked more depositors to pull out their funds, effectively leading to a run on the bank.

Venture capitalists, including Peter Thiel's prominent Founders Fund, advised customers to pull deposits out of the bank, adding momentum to a bank run that set off the bank's swift collapse.

People walk through the parking lot at the Silicon Valley Bank headquarters in Santa Clara, Calif., on March 10, 2023. SVB saw a surge in deposits during the tech boom, but was forced to sell some of its bond holdings at a steep loss after seeing an increase in deposit withdrawals.
Justin Sullivan / Getty Images
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Getty Images
People walk through the parking lot at the Silicon Valley Bank headquarters in Santa Clara, Calif., on March 10, 2023. SVB saw a surge in deposits during the tech boom, but was forced to sell some of its bond holdings at a steep loss after seeing an increase in deposit withdrawals.

Tech CEOs were pleading for help

As federal officials scrambled over the weekend to try to prevent a larger financial fallout from the bank's demise, the venture capitalist community took to Twitter with doomsday predictions, claiming the failure to back up deposits could lead to catastrophe for tech startups and venture capital firms.

More than 5,000 startup CEOs and founders pleaded with federal officials for support, as reports circulated of startup founders unsure of how they would be able to pay employees if their money was tied up in the insolvent Silicon Valley Bank.

"We are not asking for a bailout for the bank equity holders or its management; we are asking you to save innovation in the American economy," the founders and CEOs wrote in their petition. " Silicon Valley Bank's failure has a real risk of systemic contagion."

Copyright 2023 NPR. To see more, visit https://www.npr.org.

Bobby Allyn is a business reporter at NPR based in San Francisco. He covers technology and how Silicon Valley's largest companies are transforming how we live and reshaping society.
David Gura
Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.