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How Silicon Valley Bank Collapsed

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="462" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209502-16789175212023-03-15t213821z_882336725_rc2kos9j9oyu_rtrmadp_0_global-markets-view-asia-820x462.jpeg" alt="" class="wp-image-423750" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209502-16789175212023-03-15t213821z_882336725_rc2kos9j9oyu_rtrmadp_0_global-markets-view-asia-820x462.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209502-16789175212023-03-15t213821z_882336725_rc2kos9j9oyu_rtrmadp_0_global-markets-view-asia-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209502-16789175212023-03-15t213821z_882336725_rc2kos9j9oyu_rtrmadp_0_global-markets-view-asia-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209502-16789175212023-03-15t213821z_882336725_rc2kos9j9oyu_rtrmadp_0_global-markets-view-asia-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209502-16789175212023-03-15t213821z_882336725_rc2kos9j9oyu_rtrmadp_0_global-markets-view-asia.jpeg 929w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">The logo of Swiss bank Credit Suisse is seen at an office building in Zurich, Switzerland February 21, 2022. Arnd Wiegmann | Reuters</figcaption></figure>



Credit Suisse received a liquidity lifeline from the Swiss National Bank this week after its share price plunged to an all-time low, but the embattled lender’s path to the brink has been a long and tumultuous one.



The announcement that Credit Suisse would borrow up to 50 billion Swiss francs ($54 billion) from the central bank came after consecutive sessions of steep drops in its share price. It made Credit Suisse the first major bank to receive such an intervention since the 2008 Global Financial Crisis.



The bank’s shares ended Wednesday at 1.697 Swiss francs — down almost 98% from the stock’s all-time high in April 2007, while credit default swaps, which insure bondholders against a company defaulting, soared to new record highs this week.



It comes after years of investment banking underperformance and a litany of scandals and risk management failures.



<h3 class="wp-block-heading" id="h-scandals">Scandals</h3>



Credit Suisse is currently undergoing a massive strategic overhaul in a bid to address these chronic issues. Current CEO and Credit Suisse veteran Ulrich Koerner took over from Thomas Gottstein in July, as poor investment bank performance and mounting litigation provisions continued to hammer earnings.



Gottstein took the reins in early 2020 following the resignation of predecessor Tidjane Thiam in the wake of a bizarre spying scandal, in which UBS-bound former wealth management boss Iqbal Khan was tailed by private contractors allegedly at the direction of former COO Pierre-Olivier Bouee. The saga also saw the suicide of a private investigator and the resignations of a slew of executives.



The former head of Credit Suisse’s flagship domestic bank widely perceived as a steady hand, Gottstein sought to lay to rest an era plagued by scandal. That mission was short-lived.



In early 2021, he found himself dealing with the fallout from two huge crises. The bank’s exposure to the collapses of U.S. family hedge fund Archegos Capital and British supply chain finance firm Greensill Capital saddled it with massive litigation and reimbursement costs.



These oversight failures resulted in a massive shakeup of Credit Suisse’s investment banking, risk and compliance and asset management divisions.



In April 2021, former Lloyds Banking Group CEO Antonio Horta-Osorio was brought in to clean up the bank’s culture after the string of scandals, announcing a new strategy in November.



But in January 2022, Horta-Osorio was forced to resign after being found to have twice violated Covid-19 quarantine rules. He was replaced by UBS executive Axel Lehmann.



In February 2022, the bank faced fresh scrutiny after leaked data purported to show it had served human rights abusers, corrupt politicians and sanctioned businessmen for decades.



Legacy compliance skeletons also continued to emerge from the closet. In June 2022, Credit Suisse was found guilty in Switzerland’s Federal Criminal Court of failing to prevent an alleged Bulgarian cocaine trafficking gang from laundering profits via the bank between 2004 and 2008.



With litigation provisions mounting and performance still trailing its peers, the losses deepened in both the company’s earnings and its share price. After a 1.593 billion Swiss franc loss in the second quarter of 2022, and two months after Lehmann staunchly denied talks of a change in leadership, Credit Suisse announced that Gottstein would be replaced with Koerner.



The bank began another costly sweeping transformation project as Koerner and Lehmann set out to return the embattled lender to long-term stability and profitability.



This included the spin-off of Credit Suisse’s investment banking division to form U.S.-based CS First Boston, a significant cut in exposure to risk-weighted assets and a $4.2 billion capital raise, which saw the Saudi National Bank take a 9.9% stake to become the largest shareholder.



<h3 class="wp-block-heading">March madness</h3>



Credit Suisse reported a full-year net loss of 7.3 billion Swiss francs for 2022, predicting another “substantial” loss in 2023 before returning to profitability in 2024.



Reports of liquidity concerns late in the year led to huge outflows of assets under management, which hit 110.5 billion Swiss francs in the fourth quarter.



After yet another sharp share price fall on the back of its annual results in early February, Credit Suisse shares entered March 2023 trading at a paltry 2.85 Swiss francs per share, but things were about to get worse still.



On March 9, the company was forced to delay its 2022 annual report after a late call from the U.S. Securities and Exchange Commission relating to a “technical assessment of previously disclosed revisions to the consolidated cash flow statements” in 2019 and 2020.



The report was eventually published the following Tuesday, and Credit Suisse noted that “material weaknesses” were found in its financial reporting processes for 2021 and 2022, though it confirmed that its previously announced financial statements were still accurate.



Having already suffered the global risk-off jolt resulting from the collapse of U.S.-based Silicon Valley Bank, the combination of these remarks and confirmation that outflows had not reversed compounded Credit Suisse’s share price losses.



And on Wednesday, it went into freefall, as top investor the Saudi National Bank said it was not able to provide any more cash to Credit Suisse due to regulatory restrictions. Despite the SNB clarifying that it still believed in the transformation project, shares dived 24% to an all-time low.



On Wednesday evening, Credit Suisse announced that it would exercise its option to borrow up to 50 billion Swiss francs from the Swiss National Bank under a covered loan facility and a short-term liquidity facility.



The Swiss National Bank and the Swiss Financial Market Supervisory Authority said in a statement Wednesday that Credit Suisse “meets the capital and liquidity requirements imposed on systemically important banks.”



The support from the central bank and reassurance on Credit Suisse’s financial position led to a 20% pop in the share price on Thursday, and may have reassured depositors for now.



However, analysts suggest questions will remain as to where the market will place the stock’s true value for shareholders in the absence of this buffer from the Swiss authorities.

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="461" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209603-1678928783663-gettyimages-1473731745-dscf8092_424f6227-dc3d-4a53-85c5-5ca722db69e8-820x461.jpeg" alt="" class="wp-image-423718" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209603-1678928783663-gettyimages-1473731745-dscf8092_424f6227-dc3d-4a53-85c5-5ca722db69e8-820x461.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209603-1678928783663-gettyimages-1473731745-dscf8092_424f6227-dc3d-4a53-85c5-5ca722db69e8-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209603-1678928783663-gettyimages-1473731745-dscf8092_424f6227-dc3d-4a53-85c5-5ca722db69e8-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209603-1678928783663-gettyimages-1473731745-dscf8092_424f6227-dc3d-4a53-85c5-5ca722db69e8-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209603-1678928783663-gettyimages-1473731745-dscf8092_424f6227-dc3d-4a53-85c5-5ca722db69e8-1536x864.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107209603-1678928783663-gettyimages-1473731745-dscf8092_424f6227-dc3d-4a53-85c5-5ca722db69e8.jpeg 1600w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Photo: via CNBC</figcaption></figure>



Credit Suisse announced it will be borrowing up to 50 billion Swiss francs ($53.68 billion) from the Swiss National Bank under a covered loan facility and a short-term liquidity facility.



The decision comes shortly after shares of the lender fell sharply Wednesday, hitting an all-time low for a second consecutive day after its top investor Saudi National Bank was quoted as saying it won’t be able to provide further assistance.



The latest steps will “support Credit Suisse’s core businesses and clients as Credit Suisse takes the necessary steps to create a simpler and more focused bank built around client needs,” the company said in an announcement.



In addition, the bank is making a cash tender offer in relation to ten U.S. dollar denominated senior debt securities for an aggregate consideration of up to $2.5 billion – as well as a separate offer to four Euro denominated senior debt securities for up to an aggregate 500 million euros, the company said.



“These measures demonstrate decisive action to strengthen Credit Suisse as we continue our strategic transformation to deliver value to our clients and other stakeholders,” Credit Suisse CEO Ulrich Koerner said.



“We thank the SNB and FINMA as we execute our strategic transformation,” he said, referring to the Swiss Financial Market Supervisory Authority.



“My team and I are resolved to move forward rapidly to deliver a simpler and more focused bank built around client needs.”



U.S. futures climbed, with the Dow Jones Industrial Average futures gaining by more than 100 points after the announcement. S&amp;P 500 futures also rose 0.45% and Nasdaq 100 futures climbed 0.54%.



<h2 class="wp-block-heading" id="h-little-bit-of-panic"><a></a>‘Little bit of panic’</h2>



Saudi National Bank told CNBC that Credit Suisse has not asked for financial assistance and that Wednesday’s panic was unwarranted.



“There has been no discussions with Credit Suisse about providing assistance,” said Ammar Al Khudairy, chairman of Saudi National Bank, Credit Suisse’s largest shareholder.



“I don’t know where the word ‘assistance’ came from, there has been no discussions whatsoever since October,” he told CNBC’s Hadley Gamble.



He added that the latest market turmoil in the banking sector is “isolated” and stems from “a little bit of panic.”



“If you look at how the entire banking sector has dropped, unfortunately, a lot of people were just looking for excuses &#8230; it’s panic, a little bit of panic,” he said on CNBC’s “Capital Connection.”



<h2 class="wp-block-heading"><a></a>‘Interconnected’ banks</h2>



In the wake of the Credit Suisse saga, Tabbush Report founder Daniel Tabbush emphasized that a wider concern for the banking sector is trust.



“The obvious problem is a restoration of trust, and to stop the deposit flight, which maybe this has been partly or wholly addressed by the central bank,” he told CNBC’s “Street Signs Asia.”



“But what is more difficult is not simply containing its issues, is really how this feeds through to so many interconnected banks, where there are Credit Swiss contracts – where there are derivatives, where there are facilities – which is really the next order issue,” he said.



Banks in the Asia-Pacific also pared some earlier losses – Japan’s Topix earlier plunged by more than 2% and last traded 1.4% lower.



The Commonwealth Bank of Australia pared most of its losses in volatile trading – it traded 0.15% lower after falling as much as 1.97% earlier. Westpac Banking and National Australia Bank fell as much as 2.35% and 1.81% respectively before erasing some declines. They were last down 1.34% and 0.58% lower, respectively.



Some South Korean banks also fell as much as 2% earlier before partially reversing declines.



The Swiss franc remained volatile following the announcement, strengthening 0.17% to 0.9315 against the U.S. dollar. The Japanese yen also strengthened further to trade at 132.86 against the greenback.



Earlier this week, Credit Suisse chairman Axel Lehmann told CNBC’s Hadley Gamble that the recent collapse of Silicon Valley Bank is “local and contained.”



When asked if he would rule out some kind of government assistance in the future, Lehmann said, “We are regulated, we have strong capital ratios, very strong balance sheet. We are all hands on deck. So that’s not the topic whatsoever.”



– CNBC’s Lim Hui Jie contributed to this report.

107209603-1678928783663-gettyimages-1473731745-dscf8092_424f6227-dc3d-4a53-85c5-5ca722db69e8

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="461" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107204371-1678203690205-gettyimages-1247857616-powell_hearing610_030723-820x461.jpeg" alt="" class="wp-image-423684" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107204371-1678203690205-gettyimages-1247857616-powell_hearing610_030723-820x461.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107204371-1678203690205-gettyimages-1247857616-powell_hearing610_030723-300x169.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107204371-1678203690205-gettyimages-1247857616-powell_hearing610_030723-160x90.jpeg 160w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107204371-1678203690205-gettyimages-1247857616-powell_hearing610_030723-768x432.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107204371-1678203690205-gettyimages-1247857616-powell_hearing610_030723-1536x864.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107204371-1678203690205-gettyimages-1247857616-powell_hearing610_030723.jpeg 1600w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">Photo: via CNBC</figcaption></figure>



When the Federal Reserve starts to raise interest rates, it generally keeps doing so until something breaks, or so goes the collective Wall Street wisdom.



So with the second- and third-largest bank failures ever in the books happening just over the past few days, and worries of more to come, that would seem to qualify as significant breakage and reason for the central bank to back off.



Not so fast.



Even with the failure over the past several days of Silicon Valley Bank and Signature Bank that forced regulators to spring into action, markets still expect the Fed to keep up its inflation-fighting efforts. Surging bond yields played into the demise of SVB in particular as the bank faced some $16 billion in unrealized losses from held-to-maturity Treasurys that had lost principal value due to higher rates.



Still, the dramatic events may not even technically qualify as something breaking in the collective Wall Street mind.



“No, it doesn’t,” said Quincy Krosby, chief global strategist at LPL Financial. “Is this enough to qualify as the kind of break that would have the Fed pivot? The market overall doesn’t think so.”



While market pricing was volatile Monday, the bias was toward a Fed that would continue tightening monetary policy. Traders assigned an 85% probability of a 0.25 percentage point interest rate increase when the Federal Open Market Committee meets March 21-22 in Washington, D.C., according to a CME Group estimate. For a brief period last week, markets were expecting a 0.50-point move, following remarks from Fed Chair Jerome Powell indicating the central bank was concerned about recent hot inflation data.



<h2 class="wp-block-heading" id="h-pondering-a-pivot"><a></a>Pondering a pivot</h2>



Goldman Sachs on Monday said it does not expect the Fed to hike rates at all this month, though there were few, if any, other Wall Street forecasters who shared that view. Both Bank of America and Citigroup said they expect the Fed to make the quarter-point move, likely followed by a few more.



Moreover, even though Goldman said it figures the Fed will skip a hike in March, it still is looking for quarter-point increases in May, June and July.



“We think Fed officials are likely to prioritize financial stability for now, viewing it as the immediate problem and high inflation as a medium-term problem,” Goldman told clients in a note.



Krosby said the Fed is at least likely to discuss the idea of holding off on an increase.



Next week’s meeting is a big one in that the FOMC not only will make a decision on rates but also will update its projections for the future, including its outlook for GDP, unemployment and inflation.



“Undoubtedly, they’re discussing it. The question is, will they be worried perhaps that that nurtures fear?” she said. “They should telegraph [before the meeting] to the market that they’re going to pause, or that they’re going to continue fighting inflation. This is all up for discussion.”



<h2 class="wp-block-heading" id="h-managing-the-message"><a></a>Managing the message</h2>



Citigroup economist Andrew Hollenhorst said pausing — a term Fed officials generally dislike — now would send the wrong message to the market.



The Fed has sought to burnish its credentials as an inflation fighter after it spent months disavowing rising prices as nothing more than a “transitory” effect from the early days of the Covid pandemic. Powell repeatedly has said the Fed will stay the course until it makes significant progress in getting inflation down to its 2% target.



Citi, in fact, sees the Fed continuing to raise its benchmark funds rate to a target range of 5.5%-5.75%, compared to the current 4.5%-4.75% and well above the market pricing of 4.75%-5%.



“Fed officials are unlikely to pivot at next week’s meeting by pausing rate hikes, in our view,” Hollenhorst said in a client note. “Doing so would invite markets and the public to assume that the Fed’s inflation fighting resolve is only in place up to the point when there is any bumpiness in financial markets or the real economy.”



Bank of America said it remains “watchful” for any signs that the current banking crisis is spreading, a condition that could change the forecast.



“If the Fed is successful at corralling the recent market volatility and ringfencing the traditional banking sector, then it should be able to continue its gradual pace of rate hikes until monetary policy is sufficiently restrictive,” Michael Gapen, BofA’s chief U.S. economist, told clients. “Our outlook for monetary policy is always data dependent; at present it is also dependent on stresses in financial markets.”



Powell also has emphasized the importance of using data to determine the direction in which he wants to steer policy.



The Fed will get its final look at inflation metrics this week when the Labor Department releases its February consumer price index on Tuesday and the producer price counterpart on Wednesday. A New York Fed survey released Monday showed that one-year inflation expectations plummeted during the month.

107204371-1678203690205-gettyimages-1247857616-powell_hearing610_030723

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<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="547" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107207453-1678708903371-gettyimages-1247997171-FIRST_REPUBLIC_BANK-820x547.jpeg" alt="" class="wp-image-423668" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107207453-1678708903371-gettyimages-1247997171-FIRST_REPUBLIC_BANK-820x547.jpeg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107207453-1678708903371-gettyimages-1247997171-FIRST_REPUBLIC_BANK-300x200.jpeg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107207453-1678708903371-gettyimages-1247997171-FIRST_REPUBLIC_BANK-135x90.jpeg 135w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107207453-1678708903371-gettyimages-1247997171-FIRST_REPUBLIC_BANK-768x512.jpeg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107207453-1678708903371-gettyimages-1247997171-FIRST_REPUBLIC_BANK-1536x1024.jpeg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/107207453-1678708903371-gettyimages-1247997171-FIRST_REPUBLIC_BANK-scaled.jpeg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">A First Republic Bank branch in New York, US, on Friday, March 10, 2023. Jeenah Moon | Bloomberg | Getty Images</figcaption></figure>



First Republic Bank led a decline in bank shares Monday that came even after regulators’ extraordinary actions Sunday evening to backstop all depositors in failed Silicon Valley Bank and Signature Bank and offer additional funding to other troubled institutions.



San Francisco’s First Republic shares lost 65% in premarket trading Monday after declining 33% last week. PacWest Bancorp dropped 24%, and Western Alliance Bancorp lost 61% in the premarket. Zions Bancorporation shed 21%, while KeyCorp fell 12%. Bank of America lost 4% in premarket trading, while Charles Schwab tumbled 8% early Monday.



This is a developing story&#8230;

107207453-1678708903371-gettyimages-1247997171-FIRST_REPUBLIC_BANK

First Republic drops 60%, leads decline in bank stocks despite government’s backstop of SVB

<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="820" height="609" src="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/u-s-government-steps-in-and-says-people-with-funds-deposited-at-svb-will-be-able-to-access-their-money-scaled-1-820x609.jpg" alt="" class="wp-image-423656" srcset="https://cms.cnbcafrica.com/wp-content/uploads/2023/03/u-s-government-steps-in-and-says-people-with-funds-deposited-at-svb-will-be-able-to-access-their-money-scaled-1-820x609.jpg 820w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/u-s-government-steps-in-and-says-people-with-funds-deposited-at-svb-will-be-able-to-access-their-money-scaled-1-300x223.jpg 300w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/u-s-government-steps-in-and-says-people-with-funds-deposited-at-svb-will-be-able-to-access-their-money-scaled-1-121x90.jpg 121w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/u-s-government-steps-in-and-says-people-with-funds-deposited-at-svb-will-be-able-to-access-their-money-scaled-1-768x571.jpg 768w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/u-s-government-steps-in-and-says-people-with-funds-deposited-at-svb-will-be-able-to-access-their-money-scaled-1-1536x1141.jpg 1536w, https://cms.cnbcafrica.com/wp-content/uploads/2023/03/u-s-government-steps-in-and-says-people-with-funds-deposited-at-svb-will-be-able-to-access-their-money-scaled-1-scaled.jpg 2048w" sizes="auto, (max-width: 820px) 100vw, 820px" /><figcaption class="wp-element-caption">A man walks by the headquarters of Silicon Valley Bank on March 10, 2023 in Santa Clara, California. Liu Guanguan | Getty Images</figcaption></figure>



Banking regulators devised a plan Sunday to backstop depositors with money at Silicon Valley Bank, a critical step in stemming a feared systemic panic brought on by the collapse of the tech-focused institution.



Depositors at both failed SVB and Signature Bank in New York, which was shuttered Sunday over similar systemic contagion fears, will have full access to their deposits as part of multiple moves that officials approved over the weekend. Signature had been a popular funding source for cryptocurrency companies.



Those with money at the bank will have full access starting Monday.



The Treasury Department designated both SVB and Signature as systemic risks, giving it authority to unwind both institutions in a way that it said “fully protects all depositors.” The FDIC’s deposit insurance fund will be used to cover depositors, many of whom were uninsured due to the $250,000 cap on guaranteed deposits.



Along with that move, the Federal Reserve also said it is creating a new Bank Term Funding Program aimed at safeguarding institutions affected by the market instability of the SVB failure.



A joint statement from the various regulators involved said there would be no bailouts and no taxpayer costs associated with any of the new plans. Shareholders and some unsecured creditors will not be protected and will lose all of their investments.



“Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system,” said a joint statement from Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg.



The Fed facility will offer loans of up to one year to banks, saving associations, credit unions and other institutions. Those taking advantage of the facility will be asked to pledge high-quality collateral such as Treasurys, agency debt and mortgage-backed securities.



“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a statement. “The Federal Reserve is prepared to address any liquidity pressures that may arise.”



The Treasury Department is providing up to $25 billion from its Exchange Stabilization Fund as a backstop for any potential losses from the funding program. A senior Fed official said the Treasury program likely won’t be needed and will exist only as a safeguard.



The same official expressed confidence the various moves would shore up confidence in the financial system, providing funding guarantees and liquidity considered essential during financial crises.



Along with the facility, the Fed said it will ease conditions at its discount window, which will use the same conditions as the BTFP. However, the new facility offers more favorable terms, with a longer duration of loans of one year vs. 90 days. Also, securities will be valued at par value rather than the market value assessed at the discount window.



The haircut, or reduction in principal, issue is critical as there are estimated to be some $600 billion in unrealized losses that institutions possess in held-to-maturity Treasurys and mortgage-backed securities.



“This should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age,” Paul Ashworth, chief North America economist at Capital Economics, said in a client note. “But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.”



Markets reacted positively to the developments, with futures tied to the Dow Jones Industrial Average leaping more than 300 points in early trading. Cryptocurrency prices also rallied strongly, with bitcoin up more than 7%.



The rescue plans rekindled memories of the financial crisis, but Yellen said Sunday morning that there would be no SVB bailout.



“We’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs,” Yellen said on CBS’ “Face the Nation.”



President Joe Biden praised Sunday’s initiatives but indicated there would be consequences from the crisis.



“I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again,” Biden said.



The SVB failure was the nation’s largest collapse of a financial institution since Washington Mutual went under in 2008.



The dramatic moves come just days after SVB, a key financing hub for tech companies, reported that it was struggling, triggering a run on the bank’s deposits.



Authorities had spent the weekend looking for a larger institution to buy SVB, but came up short. PNC was one interested buyer but backed out, a source told CNBC’s Sara Eisen.



A senior Treasury official said Sunday evening that a sale is still possible for Silicon Valley Bank. The initiatives Sunday were done to head off further potential problems.



The scenario harkened back to the Sept. 15, 2008 collapse of investment banking giant Lehman Brothers, which also found itself insolvent and in search of a buyer. The government also was unsuccessful in that case following a weekend of wrangling, triggering the worst of the Global Financial Crisis.

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