The U.S. government has stepped in after the failure of Silicon Valley Bank, with authorities saying on Sunday that it would protect depositors, who would have access “to all of their money” by the next day.
“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,” it explained.
Federal regulators stepped in and closed SVB after its collapse on Friday. Two days later, they closed New York’s Signature Bank, citing systemic risk. In the same statement, the government said that Signature’s depositors would similarly be made whole.
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American taxpayers would not shoulder the burden related to the unwinding of either institution, a joint statement from the Treasury Department, the Fed and the Federal Deposit Insurance Corporation said.
In both cases, the Treasury appeared primed to extend the backstop to cover deposits beyond the federal bank insurance ceiling of $250,000.
The statement noted that “shareholders and certain unsecured debt holders” would not be protected, and that senior management of both banks had been removed.
In a separate move, the Federal Reserve said that it was making available additional funding to the nation’s banks to shield them from the economic fallout of the weekend’s events.
On Sunday evening, President Joe Biden issued a statement praising the response, saying he was “pleased” with the solution. “The American people and American businesses can have confidence that their bank deposits will be there when they need them,” he said.
Earlier on Sunday, Treasury Secretary Janet Yellen had said that there were no plans to bail out the Silicon Valley Bank in the wake of the institution’s devastating crash.
“We’re not going to do that again,” she said in an interview with CBS’ Face the Nation, referring to federal bailouts that took place after the 2008 market crash. “But we are concerned about depositors, and we’re focused on trying to meet their needs.”
Yellen’s comments were made hours before a report that federal regulators put the bank up for auction on Saturday night. A result—sale or no sale—is expected to be made public before markets open on Monday morning.
Sen. Mark Warner (D-VA) was also chilly toward the idea of a federal bailout, saying on ABC This Week that the “best outcome will be an acquisition.”
Yellen was short on details about the government’s next steps, saying that was largely up to the Federal Deposit Insurance Corporation—which seized $209 billion in assets and took control of $175.4 billion in deposits hours after the bank imploded last week.
The FDIC insures deposits, but only guarantees up to $250,000. There have been calls for the FDIC to say it will protect all deposits, with some breathless predictions that if that doesn’t happen, there will be a nationwide run on banks.
“The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake,” billionaire investor Bill Ackman wrote on Twitter this weekend.
He claimed that unless someone buys SVB or the government covers all deposits by Monday, “the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs).”
But Yellen sought to allay such fears, saying the collapse of the 16th largest bank in the country is an isolated situation that should not cause panic.
“What I do want to do is emphasize that the American banking system is really safe and well-capitalized, it’s resilient,” she said.
Warner also cited the strength of the banking system, saying he feels “more optimistic this morning than he was yesterday afternoon.”
“I’ve got a lot of faith that the overall system is quite strong,” he said.
Regulators, Yellen said, are working to help depositors, including small businesses that may be facing problems meeting payroll because of the SVB disaster.
It was, in fact, a run on SVB that precipitated its failure. Depositors rushed to withdraw more than $40 billion last week after the bank abruptly disclosed that it needed to raise $2 billion in capital.
Analysts have noted that the CEO of the bank sold $3 million in shares a day before it went under, and that despite its financial issues, SVB went ahead and processed bonuses for employees hours before regulators stepped in.
Rep. Ro Khanna (D-CA), Silicon Valley’s congressional representative, took to CBS’s Face the Nation to call for “more clarity” from the administration.
“I have great respect for Secretary Yellen, but I think we need to have more clarity and greater strength in what the treasury is saying,” he said, arguing all depositors need to be “protected and have full access to their accounts Monday morning.”
Meanwhile, some GOP lawmakers have already sought to twist the bank’s collapse into the never-ending culture war. House Oversight Committee Chair James Comer went on Fox News to discuss why SVB fell. His explanation: It was too woke.
“They were one of the most woke banks,” he told Maria Bartiromo on Sunday, referring apparently to the company’s diversity initiatives. “There are consequences for bad Democrat policy, and I think we need to keep an eye on all the banking sector right now.”
