BOSTON — Massachusetts leaders are scrambling to provide a safety net for businesses impacted by the collapse of Silicon Valley Bank, the failure of which could have significant ramifications for the state’s startup and high-tech sectors.
On Monday, the Federal Deposit Insurance Corporation took over the California-based bank’s assets worth more than $209 billion and more than $175.4 billion in deposits, sweeping the high-tech focused lending institution into federal receivership.
The move followed a panic-induced run that drained billions of dollars in deposits from the bank, leading to the second-largest failure of a financial institution in U.S. history. Besides California, Massachusetts has the second largest number of Silicon Valley Bank branches in the country, including one in Beverly.
Gov. Maura Healey said her administration is working to support individuals and businesses affected by the closure and “to find solutions to help them address immediate needs, including putting supports in place to ensure that small businesses and employees do not experience significant disruptions.”
“We will continue to be in dialogue with decision-makers and support all efforts to preserve the strength and stability of our markets and protect jobs, businesses, non-profits and our economy,” she said in a statement. “We have confidence in the strength of our regional banks and banking operations.”
Boston Mayor Michelle Wu called the bank failure a “deeply distressing moment” for business leaders, entrepreneurs, nonprofits, and workers in the city, but voted that “they will not be left to fend for themselves.”
Wu said her administration’s immediate focus is helping impacted businesses make payroll, noting that local banks are “stepping up quickly to serve these companies and support their workers.”
Silicon Valley Bank is among a flurry of bank failures that prompted the Federal Reserve to roll out new programs aimed at ensuring depositors can access their money.
Over the weekend, New York-based Signature Bank was swept into federal receivership after a similar panic run on deposits drained billions of dollars.
Silicon Valley and Signature’s demise followed the failure of crypto-friendly bank Silvergate Capital Corp., which announced last week that it’s winding down operations and liquidating the bank following a $1 billion loss in the previous fiscal quarter.
Depositors at Silicon Valley and Signature Bank will have full access to their money, under the receivership plans, but federal regulators say shareholders and some unsecured debt holders will likely not be protected.
The Fed will offer loans of up to one year to banks, savings associations, credit unions and other institutions. The Treasury is providing up to $25 billion from a federal stabilization fund as a backstop for any potential losses from the loan program, officials said.
“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry,” Federal Reserve Chair Jerome Powell, Treasury Secretary Janet Yellen and FDIC Chair Martin Gruenberg said in a joint statement.
“Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”
Early Monday, the United Kingdom’s Treasury and the Bank of England announced they had facilitated the sale of Silicon Valley Bank UK to HSBC, Europe’s biggest bank, ensuring $8.1 billion of deposits. Federal regulators are still looking for a buyer for the bank’s U.S. holdings.
President Joe Biden addressed the failure of the banks in live-televised remarks Monday, pledging that depositors’ money is protected and that banks won’t be bailed out again by taxpayers, as they were in 2008.
Biden said the FDIC’s deposit insurance fund, which is funded by a fee charged to banks, will be used to cover depositors, many of whom were uninsured due to the $250,000 cap on guaranteed deposits. He said senior management at both banks have also been removed.
“No losses will be borne by the taxpayers,” Biden said. “Because of the actions that our regulators have already taken, every American should feel confident that their deposits will be there if and when they need them.”
In Massachusetts, members of the state’s congressional delegation were calling for answers Monday from federal regulators, with some laying the blame for the bank failures on Congress’ reluctance to pass pending legislation to strengthen rules on banks.
“No one should be mistaken about what unfolded over the past few days in the U.S. banking system,” Sen. Elizabeth Warren, a Cambridge Democrat, wrote in an op-ed calling for tougher regulations. “These recent bank failures are the direct result of leaders in Washington weakening the financial rules.”
Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group’s newspapers and websites. Email him at firstname.lastname@example.org.