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Biden spoke on his administration is taking to save customers of Silicon Valley Bank

SACHA PFEIFFER, HOST:

The Biden administration has stepped in to save customers of Silicon Valley Bank and another lender, Signature Bank. It's an extraordinary effort to contain the fallout of the collapsed financial institution from spreading to other parts of the U.S. banking sector. That's a fear that President Biden addressed a short while ago.

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PRESIDENT JOE BIDEN: Today, thanks to the quick action of my administration over the past few days, Americans can have confidence that the banking system is safe. Your deposits will be there when you need them.

PFEIFFER: Administration officials say all the bank's customers will be able to get all their funds at no cost to taxpayers. And HSBC said it is purchasing the U.K. subsidiary of the bank for just 1 pound. NPR's David Gura joins us now. Hi, David.

DAVID GURA, BYLINE: Hey, Sacha.

PFEIFFER: What exactly is the federal government doing here?

GURA: Well, most of the deposits at Silicon Valley Bank, about 90% of them, were not insured by the FDIC. They were too big. The FDIC only guarantees deposits up to $250,000. So what regulators have done here is they've created a backstop so that every deposit at that failed bank is protected, and they're using an existing insurance fund, one the banks pay fees into. So officials say this is not happening at taxpayer expense. I'll add, customers at another failed bank are in the same boat. We learned last night New York regulators closed Signature Bank, and the administration says its customers will also be able to get their money back. There'd been a lot of concern customers would not be able to pay rent or make payroll. So with this emergency action, that should not be an issue.

PFEIFFER: The markets are now open today. How is Wall Street reacting to this?

GURA: Administration officials hoped this would allay fears of contagion. They've also authorized the Federal Reserve to offer more funding to banks in case there's a run on deposits at other lenders. But it's clear Wall Street is still worried. Trading has been pretty volatile this morning. Shares of bank stocks are falling. First Republic Bank, which was one of Silicon Valley Bank's peers, also had a lot of uninsured deposits. It's trading down almost 70%. But it's not just regional banks that are suffering, Sacha. The big banks are also down this morning, although not as dramatically.

PFEIFFER: David, Biden administration officials seem intent on saying this is not a bailout. But is it a bailout?

GURA: So this is not 2008 all over again. And the administration says a big reason why is they're not doing anything to help shareholders of these banks. Those investors took a risk, they say, and now they're out of luck. No one is coming to their rescue. And again, the backstop is being paid for with fees banks have paid to the FDIC. But, of course, the optics of this and the politics have been and continue to be challenging. Effectively, what you have here, Sacha, is the government offering a lifeline to both commercial entities and wealthy depositors.

PFEIFFER: I know there are a lot of complicated economics behind this, but what's the short version of how Silicon Valley Bank collapsed in the first place?

GURA: So simply put, the bank's bread and butter was tech, and it made a lot of money when interest rates were low and tech was booming. But now, of course, there's a downturn. Rising interest rates have made its portfolio of bonds much less valuable. Customers were withdrawing more and more money, and Silicon Valley Bank was bringing in less. And then last week, after the lender announced it had sold a lot of those bonds at a loss to cover those withdrawal requests, customers got worried. There was a bank run. They took out $42 billion on Thursday alone. That spooked investors. Silicon Valley Bank's share price sank. And on Friday, California regulators shut it down.

PFEIFFER: What happens to Silicon Valley Bank now?

GURA: The FDIC is in control of it. It's looking for a buyer. President Biden and regulators are vowing to get to the bottom of what happened here and to hold those responsible to account. Many venture capitalists pushed companies they worked with to withdraw their money, leading some to say they accelerated this bank run. And there is scrutiny of the decisions the head of Silicon Valley Bank and its board made before it collapsed.

PFEIFFER: That's NPR's David Gura. Thank you.

GURA: Thank you. Transcript provided by NPR, Copyright NPR.

Sacha Pfeiffer is a correspondent for NPR's Investigations team and an occasional guest host for some of NPR's national shows.
Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.