California’s wine industry has avoided a financial crisis after the federal government announced a multibillion-dollar rescue package for depositors at the collapsed Silicon Valley Bank (SVB).
Thousands of wineries were locked out of their accounts after the industry’s go-to bank was placed into receivership on Friday. They spent an anxious weekend fearing that they would be unable to pay their staff or process transactions. John Balletto, president of family-owned Balletto Vineyards in Santa Rosa, said the industry was in shock and warned that the fallout could be ‘devastating’.
However, regulators announced on Sunday evening that they will safeguard all deposits at the bank, including funds that would not normally be covered by federal deposit insurance. It means that SVB customers can access all of their deposits on Monday morning, providing a lifeline for the imperilled sector.
The joint statement from the Treasury, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) has averted an immediate crisis for winemakers. However, the collapse of SVB will have long-term consequences for the Golden State’s wine trade, as it played a crucial role in the $73 billion sector’s infrastructure.
A brief timeline of SVB’s demise
On Thursday last week, San Francisco-based venture capital firm Founders Fund sparked a bank run on SVB by flagging concerns about its financial stability. The bank scrambled to raise capital to offset fleeing deposits, but it lost $1.8 billion when selling long-term government bonds whose values had been torpedoed by the Federal Reserve’s interest rate hikes.
On Friday, regulators at the FDIC closed the bank after its attempts to raise the requisite capital ultimately ended in failure. It marks the largest collapse of a US financial institution since the height of the financial crisis almost 15 years ago. The decision to place the bank into receivership put almost $175 billion worth of customer deposits under the regulator’s control.
SVB was FDIC-insured, so all customers with up to $250,000 sitting in the bank knew that they would be made whole. However, there were no guarantees that customers with larger deposits would recoup all of their money. According to S&P Global Market Intelligence, 97% of accounts with SVB had more than $250,000 deposited, and SVB held $151.6 billion in uninsured deposits, leading customers to plead for government help over the weekend.
No bailout, but a major rescue package
Wineries’ fears were compounded on Sunday when secretary of the treasury Janet Yellen ruled out a bailout of the collapsed bank. However, regulators then announced a rare move to safeguard all deposits at SVB, including the $151.6 billion in uninsured deposits.
This decision was designed to prevent the bank’s abrupt collapse from infecting the rest of the US financial system and sparking a domino effect. Regulators determined that there would be a ‘systemic risk’ to the financial system if they did not act.
Taxpayers will not foot the bill, as it will be covered by the banks that fund the deposit insurance system. However, SVB’s shareholders and ‘certain unsecured debt holders’ will receive no protection.
Nasdaq futures surged 1.75% on the back of the rescue package, while major cryptocurrencies including Bitcoin rallied by more than 10%. USDC, a stablecoin designed to be pegged to the dollar, had fallen as low as $0.88 after executives announced that $3.3 billion of its $40 billion in reserves were held at SVB. Meanwhile, HSBC announced it would purchase SVB’s UK arm for £1, providing salvation for British businesses caught up in its collapse.
The leading bank for the wine industry
SVB was America’s 16th-largest bank, with $209 billion in assets at the end of 2022. It primarily focused on the tech and healthcare sectors, but California’s wine industry was hit hard by its demise, as SVB was the leading bank for the trade.
In 1994, SVB executive vice president…
Source : https://www.decanter.com/wine-news/silicon-valley-bank-rescue-package-averts-financial-crisis-for-californias-wine-industry-499341/