WASHINGTON/SINGAPORE - Authorities in the United States took emergency measures on Sunday to restore trust in the banking system after the failure of Silicon Valley Bank  threatened to spark a larger financial crisis.

Following a dramatic weekend, regulators announced that customers of the failed bank will have access to all of their deposits beginning Monday and that a new facility to provide banks with emergency funds will be established. In addition, the Federal Reserve made it easier for banks to borrow from it in times of emergency.

While the measures relieved Silicon Valley firms and global markets on Monday, concerns about broader banking risks remained, casting doubt on the Fed's commitment to aggressive interest rate hikes.

"We believe the Fed, Treasury, and FDIC's actions will decisively break the psychological 'doom loop' across the regional banking sector," said Karl Schamotta, chief market strategist at Corpay in Toronto.

"However, fairly or unfairly, the episode will contribute to higher levels of background volatility, with investors on the lookout for other cracks to appear as the Fed's policy tightening continues."

Regulators also acted quickly to close New York's Signature Bank, which had recently come under fire.

However, lingering financial sector concerns weighed on major banking stocks, with HSBC Holdings, Standard Chartered Bank, Japan's Mitsubishi UFJ, and Singapore's DBS all falling.

The Biden administration's intervention highlights how the Fed and other major central banks' relentless campaign to combat inflation is putting strain on the financial system and global markets.

However, as the bank experienced a run last week, concerns that other regional banks shared similarities spread quickly. With the Fed poised to raise interest rates further, investors believe the financial system is not yet fully recovered.

Analysts at Goldman Sachs said that, given the banking sector's stress, they no longer expect the Fed to raise rates at that meeting.
Goldman previously forecast a 25-basis-point increase in March. "What investors should expect for tomorrow and beyond is that we will be dealing with a lot of event risk," said Michael Purves, CEO of Tallbacken Capital Advisors.

SVB's failure, the biggest bank failure since 2008, raised questions about whether small-business clients would be able to pay their employees because the FDIC only covered deposits up to $250,000.

By the end of 2022, the FDIC estimated that 89% of SVB's $175 billion in deposits were uninsured. The actions taken will protect depositors while providing additional support to the more extensive banking system, according to a joint statement from the U.S. Treasury and Federal Reserve. However, officials and regulators continue to monitor the financial system's stability. The depositors are safeguarded, the official declared.

The Deposit Insurance Fund, which has enough money to do so, would be responsible for bearing the risk. The official stated that it was deemed more expedient to provide the systemic risk exceptions than to wait for a potential buyer.

The New York State Financial Regulator closed the Signature Bank in New York on Sunday, and the Treasury announced that depositors would be made whole without incurring any costs to the taxpayer.

The majority of Signature's clients were in the technology industry, and as interest rates increased, the value of the securities on its balance sheet decreased.

The bank declared that it would reduce its crypto-related deposits by $8 billion in December. The Federal Reserve's decision to make sure financial institutions can meet the needs of all their depositors would "restore market confidence," even though new policies adopted on Sunday will "wipe out" equity and bondholders in SVB and Signature Bank. Nevertheless, all customer deposits will be protected.

In contrast to the 70% chance that existed before the SVB news broke last week, Fed fund futures surged on Monday to suggest only a 17% chance of a half-point rate hike by the Federal Reserve when it meets next week.

The Fed introduced a new Bank Term Funding Program to provide depository institutions with loans for up to one year that is secured by Treasury securities and other assets. Use of the Fed's discount window facility increased by more than $50 billion in March 2020, when the coronavirus pandemic sparked a financial crisis.

With weekly outstanding balances of $4 billion to $5 billion since the beginning of the year, there had been no signs of usage increasing through the middle of last week.