The Government Bailed Out SVB, Rep Maxine Waters Skeptical About Bank

The collapse of Silicon Valley Bank came as a surprise to many, and California Representative Maxine Waters immediately began making inquiries about the status of the failed institution and the fate of its worried depositors.

Suspicious Motives

Waters, who had previously chaired the House Financial Services Committee, was skeptical that any other bank would step in to purchase the defunct lender and rescue its clients.

According to her, banks are not in the habit of spontaneously deciding to take over a struggling rival. What followed was a hectic weekend of constant briefings with various officials, including regulators, legislators, the Biden administration, and the President himself, to find a solution to the collapse of the 16th largest bank in the country, which had long been a key financial institution for tech entrepreneurs.

As Bharat Ramamurti, the deputy director of the National Economic Council, put it, “We were racing against the clock.” Ultimately, the officials had to find a solution to ensure that depositors' money was secure, preventing a potential domino effect of bank failures that could have had dire consequences for the entire US economy.

The problem at the heart of the issue was the tens of billions of dollars, including funds that firms required to meet their payrolls, which were held in Silicon Valley Bank accounts that lacked protection from federal deposit insurance, which only applies up to $250,000. Federal officials agreed that something needed to be done before Asian stock markets opened on Sunday evening, with other banks likely to face a wave of panicked withdrawals on Monday morning.

Republican senators were informed by officials from the Federal Deposit Insurance Corp. on Monday that they had received bids for Silicon Valley Bank over the weekend, but they had not been able to finalize the deal. The officials suggested that the bank could be put up for auction again, as per an anonymous source familiar with the conversation.

Meanwhile, Waters had been in discussions with Federal Reserve Chair Jerome Powell on Sunday. Powell briefed her on a new emergency program that the Fed was developing, which would allow them to lend directly to banks. This program would enable banks to cover withdrawals without having to sell off assets to raise cash, thus reassuring depositors and preventing bank runs at other institutions.

Let The Bailouts Begin

Silicon Valley Bank's troubles began last Wednesday when the institution announced it needed to raise $2.25 billion to prop up its finances, having suffered significant losses on its bond portfolio as the Federal Reserve hiked interest rates. Depositors began withdrawing their funds the next day, prompting a classic bank run.

On Friday morning, Treasury Secretary Janet Yellen confirmed that her department was keeping a close eye on the situation at a House Ways and Means committee hearing. She acknowledged that the financial losses experienced by banks were a cause for concern.

By Sunday night, however, the Treasury Department, the FDIC, and the Federal Reserve had agreed to provide federal protection for all deposits in Silicon Valley Bank, including those exceeding the $250,000 FDIC limit. Representative Waters lauded the move as a testament to what can be achieved through effective collaboration between government departments.

However, not everyone was happy with the outcome. On Monday, Republican senators expressed reservations about wealthy Silicon Valley depositors being bailed out and suggested that community banks in their home states could end up bearing the brunt of the cost in the form of higher assessments for federal deposit insurance.

Moving Forward

Silicon Valley Bank's collapse was a particularly thorny issue due to the fact that an astonishing 94% of the institution's deposits, including large cash holdings by tech startups, were not FDIC-insured. Over the weekend, as administration officials and regulators worked to find a solution, President Biden expressed concern about small businesses and their employees who relied on these accounts that were now in jeopardy. There were also fears that if depositors lost their money, it could lead to a wider loss of faith in the banking system, with customers of other institutions potentially rushing to withdraw their funds on Monday.

Massachusetts Representative Jake Auchincloss, who had been fielding calls about the crisis all weekend, said that panic among the state's industry and nonprofit sectors had become acute within a matter of hours. Silicon Valley Bank was not the only bank to collapse; on Sunday evening, officials announced that New York-based Signature Bank, a major lender to New York landlords, had also failed and was being seized.

The government's decision to cover deposits over $250,000 would also apply to Signature's customers, and President Biden issued a statement on Sunday to assure the American public that their bank deposits would be safe. On Monday, Federal Reserve Chair Jerome Powell announced that the Fed would conduct a review of its supervision of Silicon Valley Bank to understand what had gone wrong.

Now, President Biden and lawmakers are calling for tighter financial regulations on regional banks, potentially by reinstating parts of the Dodd-Frank law that had been rolled back five years ago. The goal is to prevent similar banking crises from occurring in the future.

This article was produced and syndicated by Wealth of Geeks.