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Israeli Firms Can Relax – The Fed Ensures Bank Depositors After SVB Collapse

Shekel NIS

The collapse of Silicon Valley Bank (SVB) last week left a feeling of uncertainty everywhere, including in Israel where firms like Pagaya and Similarweb were huge clients of the bank. And business leaders and investors alike were concerned about the funds firms had in the bank. Well, now people can breathe easier as the U.S. Treasury Department approved a plan to guarantee the funds of all banks, including SVB. The measure was taken to prevent a loss of confidence in the banking system itself.

In a joint Statement, the Treasury Department, Federal Reserve, and FDIC said, “Today we are taking decisive actions to protect the U.S. economy by strengthening public confidence in our banking system. This step will ensure that the U.S. banking system continues to perform its vital roles of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth.”

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Silicon Valley Bank (SVB) collapsed in what was described as the largest failure of a US bank since Washington Mutual in 2008. On Friday, the Federal government was forced to take over SVB and this is having repercussions in Israel where hundreds of firms are said to have deposits with the bank.

“The U.S. banking system,” stated the agencies, “remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry. Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.

The Federal Reserve said it is prepared to address any liquidity pressures that may arise in American banks as a result of the SVB crash. Additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par.

The Federal Reserve said the BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution’s need to quickly sell those securities in times of stress.

But Silicon Valley Bank debtors still have a problem.

Israeli fintech company Pagaya holds a rolling credit line of $167.5 million that it received from Silicon Valley Bank last September, but Pagaya never realized the entire credit at its disposal. Digital intelligence company Similarweb has a $75 million line of credit from the bank. And Innovid, which develops digital advertising technologies, has a credit line of $50 million with SVB. Innovid said that it used $20 million as of the end of 2022.

The problem for any firms with such lines of credit with Silicon Valley Bank is that now they will need to look elsewhere to borrow money. This will not be so easy considering the current state of the world’s financial markets. Also, the American government could begin to call in the loans already paid out to have the needed fund for reimbursement to SVB creditors and depositors.

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