US President Joe Biden is set to speak about the current banking situation on Monday, following the Silicon Valley Bank (SVB) collapse, according to a statement released by the White House.

"Tomorrow morning, I will deliver remarks on how we will maintain a resilient banking system to protect our historic economic recovery," Biden said in a Sunday release, adding that he was "committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again."  

The president revealed that upon his command, US Treasury Secretary Janet Yellen worked over the weekend with banking regulators to address problems with SVB and the New York-based Signature Bank. 

Biden said that "I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe. The solution also ensures that taxpayer dollars are not put at risk," adding that the "American people and American businesses can have confidence that their bank deposits will be there when they need them."  

In a joint statement on Sunday, Yellen said that with the Federal Reserve Board Chair Jerome Powell and Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg that the US Federal Reserve System was going to assign additional funds to US banks to meet the needs of all depositors. That said, depositors are expected to have access to all of their money starting today, according to the statement. 

Yellen, Powell, and Gruenberg also explained that a systemic risk exception similar to the one made for SVB would also be made for Signature Bank, which was closed on Sunday.

On Friday, the California Department of Financial Protection and Innovation announced that it was taking possession of SVB, citing inadequate liquidity and insolvency. It is worth noting that SVB became the largest bank to fail in the US after the 2007–2008 financial crisis.

To protect insured depositors, the FDIC established a new entity, the Deposit Insurance National Bank of Santa Clara. It will go into operation on March 13th. People who have uninsured deposits will receive an advance dividend and a small certificate, but this does not ensure that they will receive their entire investment back.

What is Silicon Valley? 

Prior to its collapse, Silicon Valley Bank was the 16th largest bank in the United States and an essential engine for the success of the tech industry. It positioned itself as the "go-to bank for investors" and the "financial collaborator of the innovation economy." The Bank was a member of the Federal Reserve System and was governed by the California Department of Financial Protection and Innovation (DFPI) as a state-chartered bank.

Why did the bank collapse?

Since last year, the Federal Reserve has been raising interest rates from historic lows to combat inflation. When the money accessible to them becomes more expensive due to higher interest rates, investors' appetite for risk decreases. This weighed on Silicon Valley Bank's main clients, technology startups because it made their investors more risk-averse.

As higher interest rates caused the market for initial public offerings to close for many startups and private fundraising to become more expensive, some Silicon Valley Bank clients began withdrawing funds to meet their liquidity requirements.

Silicon Valley sells bonds

To finance the cash withdrawals, Silicon Valley Bank sold a $21 billion bond portfolio comprised mostly of US Treasuries on Wednesday. However, SVB was forced to acknowledge a $1.8 billion loss, which it needed to make up with a capital raise.

To close its funding gap, SVB stated on Thursday that it would sell $2.25 billion in common equity and preferred convertible stock. Its shares finished the day down 60%, as investors worried that the deposit withdrawals would force it to raise even more cash.

On Friday, after SVB scrambled to secure alternative funding, the Federal Deposit Insurance Corporation (FDIC) announced that SVB had been closed and put in receivership. The FDIC also stated that it would attempt to sell SVB's assets and that future dividend payments to uninsured depositors may be made.

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