Treasury Secretary Janet Yellen said Sunday that the federal government will not bail out a Silicon Valley bank but is working to help depositors worried about their money.
NEW YORK (AP) — The U.S. federal government says all Silicon Valley Bank customers will be protected and have access to their funds, just days after the bank collapsed and sent its customers into a panic. The Treasury Department, the Federal Reserve and the FDIC announced steps Sunday to protect bank customers and prevent new bank runs. “This step ensures that the U.S. banking system will continue to perform its vital functions of protecting deposits and providing access to credit to households and businesses in a way that fosters strong and sustainable economic growth,” the agencies said in a joint statement.
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Treasury Secretary Janet Yellen said Sunday that the federal government would not help Silicon Valley Bankbut works to help depositors who care about their money.
The Federal Deposit Insurance Corporation insures deposits up to $250,000, but many of the companies and wealthy individuals who used bank — known for their relationships with tech startups and venture capital — had more than that amount in their account. There are fears that some workers across the country will not be paid.
No plans were announced Sunday afternoon, with several hours remaining before Asian markets opened. There were widespread hopes that Silicon Valley Bank would be acquired, but it was unclear whether a buyer would emerge.
Federal officials have set a deadline of 2 p.m. for potential buyers to submit bids in a public auction for the bank, according to a person familiar with the matter. The person spoke on condition of anonymity to discuss private conversations. Bloomberg first reported the auction.
In an interview on CBS’ “Face the Nation” Sunday morning, Yellen offered few details about the administration’s next steps. But she emphasized it the situation was much different since the financial crisis nearly 15 years ago, which led to bank bailouts to protect the industry.
“We’re not going to do it again,” she said. “But we’re concerned about depositors, and we’re focused on meeting their needs.”
Wall Street rumbledYellen tried to assure 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.”
Silicon Valley Bank, based in Santa Clara, California, is the nation’s 16th largest bank. It was the second major bank failure in U.S. history, following the collapse of Washington Mutual in 2008. The bank has served primarily technology workers and venture capital-backed companies, including some of the industry’s best-known brands.
The Silicon Valley bank began to slide toward insolvency as its customers, mostly technology companies that needed money as they struggled to get financing, began withdrawing their deposits. The bank was forced to sell bonds at a loss to cover withdrawals, leading to the biggest failure of a US financial institution since the height of the financial crisis.
Yellen described the rising interest rates that have been increased by the Federal Reserve to combat inflation as a major challenge for Silicon Valley Bank. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates rose.
“The problems with the technology sector are not the core of this bank’s problems,” she said.
Yellen said she expects regulators to consider “a wide range of available options,” including the acquisition of Silicon Valley Bank by another institution. The buyer has not been announced.
Sheila Bair, who chaired the FDIC during the 2008 financial crisis, recalled that in almost all bank failures during that time, “we sold bank-bank-bank to healthy ones. And typically, a healthy buyer will also cover the uninsured because they want the deductible value of these large contributors to be so optimal that it’s the best outcome.” But in the case of Silicon Valley Bank, she told NBC’s “Meet the Press,” “it was a liquidity failure, it was a run on the bank, so they didn’t have time to prepare for the bank to go public. So they have to do it now and play catch-up.”
Regulators seized the bank’s assets on Friday. Deposits insured by the federal government should be available by Monday morning.
“I worked all weekend with our banking regulators to develop appropriate policies to address this situation,” Yellen said. “I cannot give any further details at this time.”
House Speaker Kevin McCarthy, D-Calif., said on Fox News’ “Sunday Morning Futures” that he hopes the administration will announce next steps on Sunday.
“They have the tools to deal with the current situation, they know the gravity of it and they are working to try to make some kind of statement before the markets open,” he said.
McCarthy also expressed hope that Silicon Valley Bank would be acquired.
“I think that’s going to be the best outcome moving forward and cooling the markets so that people understand that we can move forward in the right way,” he said.
Democratic Rep. Roe Hanna, whose district includes the bank’s headquarters city, said it was critical that the government ensure all depositors “have full access to their accounts on Monday morning.”
“Time is running out,” he told CBS.
Sen. Mark Warner, R-Virginia, told ABC News’ “This Week” that he worries the bank’s collapse could prompt nervous people to move money from other regional banks to larger institutions.
“We don’t want further consolidation,” he said.
Warner suggested that compensating depositors above the $250,000 limit could cause “moral hazard” and said an acquisition would be the best next step.
“I’m more optimistic this morning than I was at this time yesterday afternoon,” he said. “But, again, we’ll see how it plays out the rest of the day.”
He added: “We need to focus now on how to make sure there is no contagion.”
President Joe Biden and California Gov. Gavin Newsom spoke of “efforts to resolve the situation” on Saturday, though the White House did not provide further details on next steps.
Newsom said the goal is to “stabilize the situation as quickly as possible to protect jobs, people’s livelihoods and the entire innovation ecosystem that has served as a tentpole for our economy.”
Associated Press reporter Hope Yen in Washington contributed to this report.
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