The U.S. government took emergency steps Sunday in an attempt to prevent more instability among banks after the historic failure of Silicon Valley Bank, and assured clients of the failed financial institution that they would be able to recover all of their money quickly.
The announcement came amid fears that the factors that caused the Santa Clara, California-based bank could spread, and only hours before trading began in Asia.
Regulators had worked all weekend to try and come up with a buyer for the bank or broker another intervention, and as another bank, Signature Bank, was shuttered.
The Treasury Department, Federal Reserve and FDIC said Sunday that all Silicon Valley Bank clients will be protected and have access to their funds and announced steps designed to protect the bank’s customers and prevent more bank runs.
“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,” the agencies said in a joint statement.
Regulators had to rush to close Silicon Valley Bank, a financial institution with more than $200 billion in assets, on Friday when it experienced a traditional run on the bank where depositors rushed to withdraw their funds all at once. It is the second-largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual.
Some prominent Silicon Valley executives feared that if Washington didn’t rescue the failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, including First Republic Bank and PacWest Bank.
Among the bank’s customers are a range of companies from California’s wine industry, where many wineries rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change.
Treasury Secretary Janet Yellen had said Sunday that the federal government would not bail out Silicon Valley Bank, but is working to help depositors who are concerned about their money.
The Federal Deposit Insurance Corporation insures deposits up to $250,000, but many of the companies and wealthy people who used the bank — known for its relationships with technology startups and venture capital — had more than that amount in their account.
There are fears that some workers across the country won’t receive their paychecks.
Yellen, in an interview with CBS’ “Face the Nation,” provided few details on the government’s next steps. But she emphasized that the situation was much different from the financial crisis almost 15 years ago, which led to bank bailouts to protect the industry.
“We’re not going to do that again,” she said.
“But we are concerned about depositors, and we’re focused on trying to meet their needs.”
With Wall Street rattled, Yellen tried to reassure Americans that there will be no domino effect after the collapse of Silicon Valley Bank.
“The American banking system is really safe and well capitalized,” she said. “It’s resilient.”
Yellen described rising interest rates, which have been increased by the Federal Reserve to combat inflation, as the core problem for Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.
“The problems with the tech sector aren’t at the heart of the problems at this bank,” she said.
Yellen said she expected regulators to consider “a wide range of available options,” including the acquisition of Silicon Valley Bank by another institution. So far, however, no buyer has stepped forward.
Prominent Silicon Valley personalities and executives have been hitting the giant red “panic” button, saying that if Washington does not come to the rescue of Silicon Valley bank’s depositors, more bank runs are likely.
“The gov’t has about 48 hours to fix a soon-to-be-irreversible mistake,” Bill Ackman, a prominent Wall Street investor, wrote on Twitter. Ackman has said he does not have any deposits with Silicon Valley Bank but is invested in companies that do.
Some other Silicon Valley personalities have been even more bombastic.
“On Monday 100,000 Americans will be lined up at their regional bank demanding their money — most will not get it,” Jason Calacanis wrote on Twitter. Calacanis, a tech investor, has been close with Elon Musk, who recently took over the social media network.
Silicon Valley Bank failed on Friday, as fearful depositors withdrew billions of dollars from the bank in a matter of hours, forcing U.S. banking regulators to urgently close the bank in the middle of the workday to stop the bank run.
It’s the second-largest bank failure in history, behind the collapse of Washington Mutual at the height of the 2008 financial crisis.
Silicon Valley Bank was a unique creature in the banking world.
The 16th-largest bank in the country largely served technology startup companies, venture capital firms, and well-paid technology workers, as its name implies.
Because of this, the vast majority of the deposits at Silicon Valley Bank were in business accounts with balances significantly above the insured $250,000 limit.
Its failure has caused more than $150 billion in deposits to be now locked up in receivership, which means startups and other businesses may not be able to get to their money for a long time.
Investors have been looking for banks in similar situations. The stock of First Republic Bank, a bank that serves the wealthy and technology companies, went down nearly a third in two days. PacWest Bank, a California-based bank that caters to small to medium-sized businesses, plunged 38 per cent on Friday.
Tom Quaadman, executive vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, said in a statement that “we urge the administration to facilitate a quick acquisition, guaranteeing all bank depositors have access to their cash.”
Regulators seized the bank’s assets on Friday. Deposits that are insured by the federal government are supposed to be available by Monday morning.
“I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” Yellen said. “I can’t really provide further details at this time.”
House Speaker Kevin McCarthy, R-Calif., told Fox News Channel’s “Sunday Morning Futures” that he hoped the administration would announce the next steps as soon as Sunday.
“They do have the tools to handle the current situation, they do know the seriousness of this and they are working to try to come forward with some announcement before the markets open,” he said.
McCarthy also expressed hope that Silicon Valley Bank would be purchased.
“I think that would be the best outcome to move forward and cool the markets and let people understand that we can move forward in the right manner,” he said.
Sen. Mark Warner, D-Va., said in an interview with ABC News’ “This Week” that he was concerned that the bank’s collapse could prompt nervous people to transfer money from other regional banks to larger institutions.
“We don’t want further consolidation,” he said.
Warner suggested there would be a “moral hazard” in reimbursing depositors in excess of the $250,000 limit and said an acquisition would be the best next step.
“I’m more optimistic this morning than I was yesterday afternoon at this time,” he said. “But, again, we will see how this plays out during the rest of the day.”
He added: “What we’ve got to focus on right now is how do we make sure there’s not contagion.”
President Joe Biden and Gov. Gavin Newsom, D-Calif., spoke about “efforts to address the situation” on Saturday, although the White House did not provide additional details on next steps.
Newsom said the goal was to “stabilize the situation as quickly as possible, to protect jobs, people’s livelihoods, and the entire innovation ecosystem that has served as a tent pole for our economy.”
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