Janet Yellen, the United States Treasury Secretary, stated on Sunday that Silicon Valley Bank would not receive a bailout following its collapse earlier this week. Nonetheless, she affirmed that the Biden administration was collaborating with regulators to aid depositors who were impacted by SVB's downfall, sparking concerns of a potential crisis.
No Help Coming
Janet Yellen, the US Treasury Secretary, has confirmed that there will be no bailout for Silicon Valley Bank (SVB) following its recent collapse. Yellen, however, stated that the Biden administration is working alongside regulators to help depositors who have been affected by SVB's collapse. She reassured the public that there is no need for concern regarding the $23tn US banking system being affected by the fall of a regional bank.
Yellen stated that conditions today are different from those of the 2008 financial crisis, as the banking system is well-capitalized, safe, and resilient. She went on to add that the reforms implemented since then mean that they will not bail out large banks again, but the administration remains focused on meeting the needs of depositors.
The US is expected to make a “material” announcement regarding its plans to stabilize SVB deposits and prevent any potential fallout. Yellen has also confirmed that they are concerned about depositors and are trying to meet their needs.
Crisis for The Fat Cats
SVB's sudden failure has caused concern among investors, given that it has assets valued at $212bn and primarily lends to tech start-ups. On Friday, the Federal Deposit Insurance Corporation (FDIC) took control of the bank, guaranteeing deposits up to $250,000. According to some estimates, many companies and individuals could lose more than half of deposits exceeding that limit.
Mark Warner, a Virginia Democrat on the US Senate banking committee, stated that SVB had been “caught in a bind” due to higher interest rates. He confirmed that he has been in talks with regulators, the White House, and the Federal Reserve. Warner stated that the best outcome would be to find a buyer for SVB assets before markets open in Asia.
He also indicated that there is consensus that shareholders of SVB ought to lose their money, but depositors are a different circumstance, and there are questions about moral hazard.
While SVB's collapse has sparked fears of a potential crisis, Yellen has emphasized that the US banking system is safe, well-capitalized, and resilient. The Biden administration is working with regulators to help depositors affected by SVB's collapse and prevent any potential contagion to other sound banks.
The FDIC has taken control of the bank, and the US is expected to make a material announcement regarding its plans to stabilize SVB deposits.
To Intervene or Not To Intervene
Silicon Valley Bank's (SVB) collapse has triggered calls for the US government to protect all depositors and ensure they have full access to their accounts on Monday morning. Ro Khanna, a congressman from California, has urged the government to take decisive action, with an ideal situation being a private acquisition of SVB with guarantees from Washington.
Khanna has also called for the $3.6m in stock sold by SVB's CEO, Gregory Becker, weeks before the collapse, to be clawed back and given to the depositor. An FDIC auction of SVB assets began on Saturday, with final bids due by Sunday afternoon.
Fox Business commentator Charles Gasparino has tweeted that SVB depositors have been told they would receive 30% to 50% of their money on Monday and most of the rest over time if there is no solution.
SVB held more than $175bn in deposits, most uninsured, and the auction is designed to make those deposits available as soon as Monday when the federally managed bank reopens. The director of the White House Office of Management and Budget, Shalanda Young, has confirmed that the situation is being taken seriously, and attempts are being made to soothe fears that regional banks might be affected.
Young stated that US banking is in a better position than before the financial crisis due to the reforms implemented after the crisis, making the regulators more powerful and the system more resilient.
Current and former financial officials in Washington have indicated that the SVB collapse does not warrant intervention. A former FDIC chair, Sheila Bair, told NBC’s Meet the Press SVB was a $200bn bank in a $23tn industry, making it hard to say that the collapse is systemic in any way.
The Fed and FDIC are considering the creation of a fund to backstop deposits at banks that run into trouble.
The risk and financial advisory firm Kroll has warned that small community banks could face problems, with a risk that uninsured depositors of SVB are not made whole. Regional banks that have seen their values plunge include Signature Bank, First Republic Bank, Western Alliance, and PacWest. The failure of SVB “could be the first cockroach in the cellar,” according to investment manager Fredric Russell, who warned that banks get thrown into the dark pool of complacency, and then they lower their quality standards.
Billionaire hedge fund manager Bill Ackman has also warned of the unintended consequences of the government's failure to guarantee SVB deposits, which could spark withdrawals of uninsured deposits elsewhere, potentially leading to the destruction of important institutions.
Ackman has said that the government has about 48 hours to fix a soon-to-be-irreversible mistake and that the unintended consequences of the government's failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday.
The US government has been in talks with regulators, the White House, and the Federal Reserve to find a solution to the SVB collapse. Joe Biden has spoken to the governor of California, Gavin Newsom, with everyone working to stabilize the situation as quickly as possible.
The risk of an SVB-style bankruptcy extending to large banks is unlikely, according to Kroll. However, the firm warned that small community banks could face problems if uninsured depositors of SVB are not made whole.
This article was produced and syndicated by Wealth of Geeks.