US guarantees Silicon Valley Bank deposits amid banking crisis fears

US regulators move to protect depositors amid concerns about the broader fallout from the second-biggest bank failure in history.

The US government has announced it will guarantee deposits at the failed Silicon Valley Bank (SVP), as financial regulators scramble to ease fears that the tech-focused lender’s collapse could trigger a broader financial crisis.

In a statement on Sunday, the US Treasury Department, the Federal Reserve and the FDIC said all customers would be protected and would be able to fully access their funds after the bank imploded.

“Today we are taking decisive action to protect the US economy by strengthening public confidence in our banking system,” the agencies said in a joint statement.

“This step will ensure that the US banking system continues to perform its vital functions of protecting deposits and providing access to credit to households and businesses in a way that promotes strong and sustainable economic growth.”

The statement said that depositors would have access to all their money starting Monday and that the taxpayer would assume no loss.

US regulators have been scrambling to find a buyer for Santa Clara-based Silicon Valley Bank since seizure of bank assets on Friday following massive withdrawal of funds by depositors.

The bank’s financial health had come under scrutiny following its announcement of plans to raise $1.75 billion in capital following loss-making bond sales.

Silicon Valley Bank, whose business largely catered to tech workers and venture capital-backed companies, had roughly $200 billion in assets at the time of its collapse. The bank’s failure is the second largest banking collapse in US history, after the implosion of Washington Mutual in 2008.

In an indication of the spreading financial fallout, regulators said New York-based Signature Bank had also failed and was being repossessed, marking the third-biggest bank failure in US history.

Regulators said a “similar systemic risk exception” would be extended to Signature Bank to guarantee all deposits with the lender.

Financial markets rallied in early Asian trading after the announcement, though questions about potential bank buyers remained unanswered.

Some observers had warned that bank customers could make runs on other financial institutions and spark a broader financial crisis if the government did not step in to reassure depositors.

However, Campbell R. Harvey, a professor at Duke University’s Fuqua School of Business, cautions against drawing comparisons between the collapse of Silicon Valley Bank and the failure of Lehman Brothers before the 2007-08 financial crisis.

“If you think about the global financial crisis, there were a number of banks that were at risk at the same time and we started to learn about them and these weren’t small players, they were big players and they were all highly correlated.” Harvey told Al Jazeera.

“This bank is different. It’s not on the top level. Most people have never heard of it, but it has focused on Silicon Valley tech investors… so I don’t see any similarities to 2007 at all.”

Harvey said that while several banks were extremely leveraged in the run-up to the 2007-08 crisis, SVP failed due to its overreliance on the technology sector, which has lost trillions of dollars in value over the past year.

“SVP is a story about a non-diversified lending book,” he said. “That is different.”