Several questions remain. The first is whether anyone will buy Silicon Valley Bank or Signature Bank, which was also shuttered. More importantly, people will ask whether these actions are tantamount to a government bail-out
on its deposits on March 10th. Over the weekend rumours spread across social media about potential problems at a handful of other regional lenders. It was easy to imagine nervous corporate treasurers deciding to shift their deposits to the biggest banks, just in case. But on March 12th a joint response by America’s Treasury, the Federal Reserve and the Federal Deposit Insurance Corporation helped take concerns about depositors off the table, while revealing another banking casualty.
The second was to set up a new lending facility, called the bank term funding programme, at the Fed. This will allow banks to pledge Treasuries, mortgage-backed securities and other qualifying assets as collateral. Banks will receive the face value of the debt in exchange for a cash advance. The borrowing rate on that cash will be fixed at the “one-year overnight index swap”, a market interest rate, plus 0.1%. These are generous terms.
The actions taken by the Treasury and the Fed raise several questions. The first is whether anyone will buyor Signature. Things necessarily moved at high speed over the weekend, says a senior Treasury official, because it was important to reassure depositors on Monday morning. For another bank to make a bid forwould require extensive due diligence, which is tough to complete over a single weekend.
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