Canada’s banking regulator has temporarily seized the assets of Silicon Valley Bank’s lone Canadian branch after the financial institution collapsed.
U.S. banking regulators were forced on Friday to urgently close the California-based institution after billions of dollars were withdrawn by fearful depositors, leading to a run on the bank, which caters heavily to tech sector firms.
There are now fears other banks could face similar difficulties, with U.S. President Joe Biden set to address the failure on Monday morning.
In a statement released Sunday, the Office of the Superintendent of Financial Institutions (OSFI) said Silicon Valley Bank’s Toronto branch has been primarily lending to corporate clients, and that the branch does not hold any commercial or individual deposits in Canada.
Superintendent Peter Routledge said in the release that he has also given notice of an intention to seek permanent control of the Canadian branch’s assets, and is requesting the attorney general of Canada apply for a winding-up order.
By taking temporary control, OSFI is acting to protect the rights and interests of the branch’s creditors, Routledge added.
“I want to be clear: the Silicon Valley Bank branch in Canada does not take deposits from Canadians, and this situation is the result of circumstances particular to Silicon Valley Bank in the United States,” he said.
Silicon Valley Bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands. It is one of the biggest bank failures in U.S. history.
Bank shares in Europe and Asia plunged on Monday as the United States’s move to guarantee the deposits of Silicon Valley Bank failed to reassure investors that other banks remain financially sound.
After a dramatic weekend, U.S. regulators on Sunday stepped in after the bank’s collapse. Silicon Valley Bank’s customers will have access to all their deposits starting Monday, and regulators set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.
Regulators also moved swiftly to close New York’s Signature Bank, which had come under pressure in recent days. Smaller banks remained under pressure, with U.S. private bank First Republic Bank plunging around 50 per cent in pre-market trading Monday, and PacWest down around 26 per cent.
Deputy Prime Minister and Finance Minister Chrystia Freeland said in a statement on Sunday night that she had spoken with Canadian financial sector leaders and the Bank of Canada, and that the country’s “well-regulated banking system is sound and resilient.”
Meanwhile, OSFI said it has closely monitored Silicon Valley Bank’s Canadian branch since the onset of the bank’s difficulties. It added that consistent with globally accepted international Basel III standards, it “continues to undertake diligent supervision of federally regulated banks in Canada, including robust requirements for capital and liquidity adequacy.”
Silicon Valley Bank began its slide into insolvency when it was forced to dump some of its treasuries at a loss to fund its customers’ withdrawals. Under the Federal Reserve’s new program, banks can post those securities as collateral and borrow from the emergency facility.
The U.S. Treasury has set aside US$25 billion to offset any losses incurred. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.
— with files from The Canadian Press, The Associated Press and Reuters
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