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France says no risk of contagion as governments handle SVB collapse fallout

The collapse of U.S. banks Silicon Valley Bank (SVB) and Signature poses no threat to French financial institutions, U.S. Treasury Secretary Bruno Le Maire said on Monday, as U.S. and U.K. authorities took extraordinary steps to head off a potential banking crisis .

Le Maire told broadcaster FranceInfo that “I do not see any risk of contagion, so there is no special warning” to be issued to local lenders.

Le Maire added that France’s banking and financial system was “solid” with “high liquidity ratios” to withstand shocks.

Not to mention, unlike Silicon Valley Bank Focus on cutting-edge technology companies The minister said French banks “do not operate in a single industry” but are “very diversified”.

Le Maire’s comments came shortly after British authorities announced that HSBC was buying SVB’s UK arm in a nominal £1 ($1.20) rescue deal.

The HM Treasury and the Bank of England “facilitated the sale of Silicon Valley Bank UK to HSBC”, securing 6.7 billion pounds ($8.1 billion) of deposits.

British officials spent the weekend looking for a buyer for the U.K. subsidiary of the California-based bank, whose collapse was the second-largest in history.

“This morning the government and the Bank of England facilitated the private sale of UK Silicon Valley Bank to HSBC,” UK Treasurer Jeremy Hunt said in a tweet. “Deposits will be protected, without taxpayer support. I said yesterday that we would take care of our tech sector and we have worked urgently to deliver on that promise.”

U.S. regulators stepped in on Sunday to ensure depositors had access to their funds at SVB, taking over on Friday after SVB was hit by a series of withdrawals.

Depositors at New York-based Signature, which closed on Sunday after its shares slumped, will also be protected.

Also on Sunday, another troubled bank, First Republic Bank, announced it had strengthened its financial position by securing funding from the Federal Reserve and JPMorgan.

In a separate statement, the Fed late Sunday announced an expanded emergency lending program aimed at preventing a wave of bank runs that could threaten the stability of the banking system and the broader economy. Fed officials described the plan as similar to what central banks have been doing for decades: lending freely to the banking system so customers can trust they can access their accounts if they need to.

The lending facility would allow banks that need to raise cash to pay depositors to borrow money from the Fed without having to sell Treasuries and other securities to raise funds. Silicon Valley Bank was forced to sell some U.S. Treasuries at a loss to fund withdrawals for its clients. Under the Fed’s new program, banks could use those securities as collateral and borrow against emergency loans.

The Treasury Department has set aside $25 billion to offset any losses from the Fed’s emergency lending facility. Fed officials, however, said they did not expect to have to use any of the money given the very low risk of default on the securities used as collateral.

Biden ‘strong commitment’ to hold those responsible

As he boarded Air Force One on Sunday night for his return to Washington, President Joe Biden said he would speak about the banks on Monday. In a statement, Biden also said he was “strongly committed to holding those responsible for this mess fully accountable and continuing to work to strengthen the oversight and regulation of large banks so we don’t end up in this situation again.” .

Regulators had to scramble to shut down Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday after it suffered a traditional bank run as depositors scrambled to withdraw their money in one go. It was the second-largest bank failure in U.S. history, after Washington Mutual’s collapse in 2008.

Some prominent Silicon Valley executives are concerned that customers will run against other financial institutions in the coming days if Washington does not rescue the failed bank. Shares in other banks serving technology companies have tumbled in the past few days, including First Republic Bank and PacWest Bank.

The bank’s clients include a range of companies from the California wine industry, many of which rely on Silicon Valley banks for loans, to tech startups working to combat climate change. Sunrun, which sells and leases solar systems, has just under $80 million in cash in Silicon Valley banks. Apparel retailer Stitchfix recently disclosed that it has a line of credit of up to $100 million with Silicon Valley Bank and other lenders.

Tiffany Dufu, founder and chief executive of The Cru, a New York-based career guidance platform and women’s community, posted a video on LinkedIn Sunday from an airport bathroom, saying the banking crisis was testing her resilience. Given that her money was frozen at Silicon Valley Bank, she had to pay her employees from her personal bank account. She is raising two teenagers who are going to college, and said she was relieved to hear the government’s intent was to make savers whole.

“Small businesses and early-stage startups don’t have a lot of leverage in this situation, and we’re often in a very vulnerable position, especially when we have to fight to get a wire transfer into your bank account in the first place, especially for For me, as a black female founder,” Du Fu told The Associated Press.

Silicon Valley Bank began to fall into bankruptcy when its customers, mainly technology companies that needed cash due to difficulties in obtaining financing, began withdrawing their deposits. The bank had to sell bonds at a loss to cover withdrawals, leading to the biggest failure of a U.S. financial institution since the worst of the financial crisis.

Treasury Secretary Janet Yellen pointed to the Federal Reserve raising interest rates to fight inflation as a core concern for Silicon Valley banks. As interest rates climbed, many of its assets, such as bonds or mortgage-backed securities, lost market value.

Sheila Bair, who chaired the FDIC during the 2008 financial crisis, recalls that when almost all the banks failed, “we sold a bank that failed to a bank that was healthy. Acquirers also cover the uninsured because they very much want the best possible franchise value for those big depositors, which is the best outcome.”

But for Silicon Valley Bank, she told NBC’s “Meet the Press,” “It’s a liquidity failure, it’s a bank run, so they don’t have time to prepare to sell the bank. So they have to do it now and catch up.”

(Reported by Agence France-Presse, Associated Press and Reuters on the 24th in France)

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