After SVB, New York-based Signature Bank collapses too

Sandeep Dikshit

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New Delhi, March 13

US President Joe Biden has vowed to do whatever is needed to address a threatened banking crisis after the collapse of Silicon Valley Bank (SVB) and Signature Bank forced regulators to step in with emergency measures.

Edit: US banking crisis

US regulators closed New York-based Signature Bank, the third largest failure in the US banking history, two days after the authorities closed down the SVB. However, fears remain that the fallout could make global markets volatile for weeks.

Minister of State for IT Rajeev Chandrasekhar said Biden’s assurance and the US government’s emergency measures on the SVB had reduced the risk to Indian start-ups, which should not take a lesson from the episode and start trusting the Indian banking system more.

Banking system safe

The banking system is safe. Your deposits will be there when you need them. —Joe Biden, US president

Fed hike rate unlikely

In what will be a blessing in disguise for the Indian financial system, Goldman Sachs’ analysts said they no longer expected the US Federal Reserve to increase the interest rates at its March 22 meeting

Biden, in a special statement, promised stiffer bank regulations. “Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” said Biden while declaring that SVB depositors could now access their money.

“With this US government action, looming risks to Indian start-ups have passed. Learning for Indian start-ups from this crisis — trust the Indian banking system more,’’ tweeted Chandrasekhar.

The SVB specialised in catering to the tech start-up ecosystem, including almost all high-flying start-ups, and failed after clients began pulling out their deposits, creating the biggest US bank runs in more than a decade. Its failure last week has left many start-ups, tech companies, entrepreneurs and VC funds on tenterhooks, but the US government’s assurance to depositors would come as partial relief.

In a related development, the UK government announced that it had facilitated London-based banking major HSBC to buy the stricken UK subsidiary of SVB for £1, securing the deposits of more than 3,000 customers worth around £6.7 billion. The action by the US authorities has been welcomed by Indian start-ups.

Nazara Tech, which has a Rs 64 crore deposit in the SVB, on Monday said the US administration’s statements on protecting depositors for the entire amount was a positive outcome. Most Indian start-ups that have a presence in the US and firms linked to incubator Y Combinator are in deep trouble and are hoping that the impact will be short-lived.

Y Combinator-backed start-ups get their payments in their SVB accounts though some like Meesho and Razorpay withdrew funds in the nick of time. Then US President Donald Trump may have contributed to the crises by partially rolling back some of the rules introduced after US banks triggered a global financial crisis in 2008 with aggressive mortgage lending.

The Republicans had aggressively pushed for increasing the threshold at which banks are considered systemically risky from $50 billion to $250 billion. The SVB squeezed out of the norms as it had $209 billion in assets. Biden will now have to push through the changes he has promised through a Congress which is now controlled by the Republicans.