No bailout for SVB, but government will back deposits

by mcardinal

U.S. Treasury Secretary Janet Yellen on Sunday said she was working closely with banking regulators to respond to the collapse of Silicon Valley Bank (SVB) and protect depositors, but a major bailout was not being considered.

Yellen told the CBS News “Face the Nation” show that she had been working with regulators to “design appropriate policies to address the situation,” the largest bank collapse since the 2008 financial crisis, but declined to give further details.

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out…and the reforms that have been put in place means we are not going to do that again,” Yellen told CBS.

“But we are concerned about depositors and are focused on trying to meet their needs,” Yellen said.

Later on Sunday, the White House announced a series of emergency measures to shore up confidence in the banking system after SVP’s failure threatened to trigger a broader systemic crisis.

After a dramatic weekend, U.S. regulators said the failed bank’s customers will have access to all their deposits starting Monday and regulators set up a new facility to give banks access to emergency funds. The Federal Reserve also made it easier for banks to borrow from it in emergencies.

Regulators also moved swiftly to close New York’s Signature Bank, which had come under pressure in recent days.

President Joe Biden on Sunday evening said the Treasury secretary and the National Economic Council director worked diligently with banking regulators to address the problems at the two banks.

“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Biden said in a statement.

“I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”

A sense of relief swept through Silicon Valley and global markets as the regulators’ announcement came just after U.S. futures started trading in Asia. Investors sent U.S. S&P 500 stock futures up 1.2%, while Nasdaq futures rose 1.3%.

“We think the steps taken by the Fed, Treasury and FDIC will decisively break the psychological ‘doom loop’ across the regional banking sector,” said Karl Schamotta, chief market strategist at Corpay in Toronto. “But, fairly or not, the episode will contribute to higher levels of background volatility, with investors watching warily for other cracks to emerge as the Fed’s policy tightening continues.”

The Biden administration’s intervention underscores how a relentless campaign by the Fed and other major central banks to beat back inflation is putting stress in the financial system and global markets.

Silicon Valley Bank (SVB), a mainstay for the startup economy, was a product of the decades-long era of cheap money, with unique risks that made it especially vulnerable. But as a run on the bank ensued last week, worries that other regional banks shared similarities spread quickly.

With the Fed poised to continue raising interest rates, investors said the financial system may not be fully out of the woods just yet. The Fed will hold its next policy meeting on March 21-22.

“What investors have to expect coming into tomorrow and beyond is that we are going to be dealing with a lot of event risk,” said Michael Purves, chief executive of Tallbacken Capital Advisors. “There are still going to be lingering questions with other regional banks.”


The collapse of SVB – the largest bank failure since 2008 – sparked concerns over whether small-business clients would be able to pay their staffs, with the FDIC only protecting deposits of up to $250,000.

Some 89% of SVB’s $175 billion in deposits were uninsured as the end of 2022, according to the FDIC.

All depositors, including those whose funds exceed the maximum government-insured level, will be made whole, according to a joint statement by U.S. Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corp Chair Martin Gruenberg on Sunday evening.

A senior U.S. Treasury official said the actions taken Sunday would protect depositors, while providing additional support to the broader banking system, but officials and regulators were continuing to monitor the health and stability of the financial system.

“The firms are not being bailed out. The depositors are being protected,” the official said.

The risk would be borne by the Deposit Insurance Fund, which has sufficient funds to do so.

“Anytime a bank fails, especially one with billions of dollars in deposits, it is a matter that we take seriously,” the official said, pointing to potentially “large implications” for the U.S. economy if companies with deposits in Silicon Valley Bank had been unable to keep paying their workers.

Providing the systemic risk exceptions was deemed quicker than waiting for a possible buyer, the official said.

“Going forward, we will work with Congress and the financial regulators to consider additional actions we could take in the future to strengthen the financial system,” the official said. No further details were provided on possible regulatory or legislative changes.

California banking regulators on Friday closed SVB, appointing the Federal Deposit Insurance Corporation (FDIC) as receiver to protect depositors at the startup-focused lender.

The collapse of the startup-focused bank has raised concerns about runs on regional banks.

Copyright 2023 Thomson/Reuters