Yellen says Silicon Valley Bank won't receive bailout after collapse

The US treasury secretary, Janet Yellen, said on Sunday there will be no bailout for Silicon Valley Bank, which collapsed this week, raising fears of a banking crisis, but also said the Biden administration was working closely with regulators to help depositors hit by the fall of SVB.

Yellen said conditions did not match the 2008 financial crisis, when the collapse of large institutions threatened to bring down the global financial system.

Yellen sought to calm fears that the $23tn US banking system could be affected by the collapse of relatively small regional bank.

“The American banking system is really safe and well-capitalized, it’s resilient,” she told CBS’s Face the Nation.“Americans can have confidence in the safety and soundness of our banking system.

“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.

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

Citing anonymous sources, Reuters reported on Sunday that the US government was expected to make a “material” announcement of plans to shore up SVB deposits and prevent wider fallout.

“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said.

The sudden failure of SVB, a California bank with assets valued at $212bn which primarily lent to tech start-ups, rattled investors and triggered calls for regulators to step in.

On Friday, SVB was placed under the control of the Federal Deposit Insurance Corporation (FDIC), which guarantees deposits to $250,000. But many companies and individuals stand to lose more than half of deposits in excess of that, according to some estimates.

Mark Warner, a Virginia Democrat on the US Senate banking committee, said SVB had been “caught in a bind” by higher interest rates. A run on the bank late last week, with $42bn withdrawn on Thursday alone, was accelerated by “some actors”, he told ABC’s This Week.

Warner said he had been in talks with regulators, the White House and the Federal Reserve. The best outcome, he said, would be to find a buyer for SVB assets before markets opened in Asia late on Sunday.

“That would be best,” he said, adding: “Shareholders in the bank are going to lose their money. Let’s be clear about that. But the depositors can be taken care of, and the best outcome will be an acquisition of SVB.”

Warner indicated that unlike in 2008, there was a broad consensus in Washington that “shareholders of [SVB] ought to lose their money. Depositors have been a different circumstance, but there are questions around moral hazard”.

The Fox Business commentator Charles Gasparino tweeted that SVB depositors had 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”.

The White House director of the Office of Management and Budget, Shalanda Young, told CNN’s State of the Union the situation was being taken “seriously” and attempted to soothe fears that other regional banks might be affected.

“It has a better foundation than before the financial crisis largely due to the reforms put in place after the financial crisis,” Young said, adding that reforms after 2008 gave “regulators more tools, and our system is more resilient in the foundation stronger”.

Yellen’s rejection of a bailout may increase fears of a domino effect on other banks if regulators do not find a buyer for SVB assets. But current and former financial officials in Washington indicated that the collapse of SVB does not warrant federal intervention.

A former FDIC chair, Sheila Bair, told NBC’s Meet the Press SVB was a $200bn bank in a $23tn banking industry.

“I think it’s going to be hard to say that this is systemic in any way,” she said.

Earlier, the Fed and FDIC were said to be considering the creation of a fund to backstop deposits at banks that run into trouble, Bloomberg reported.

The White House said on Saturday Joe Biden had spoken to the governor of California, Gavin Newsom.

“Everyone is working with FDIC to stabilize the situation as quickly as possible,” Newsom said.

The risk and financial advisory firm Kroll said it was “unlikely that an SVB-style bankruptcy will extend to the large banks”. But it warned that small community banks could face problems and the risk was “much higher if uninsured depositors of SVB aren’t made whole”.

Regional banks that have seen values plunge since the SVB crisis began include Signature Bank, First Republic Bank, Western Alliance and PacWest, which dropped 38%.

The failure of SVB “could be the first cockroach in the cellar”, the investment manager Fredric Russell told the Wall Street Journal. The failed bank was reportedly without a risk management officer for months before it collapsed.

“Banks get thrown into the dark pool of complacency, and then they lower their quality standards,” Russell said.

Bill Ackman, a billionaire hedge fund manager, also said failure to protect SVB depositors could spark withdrawals of uninsured deposits from other banks.

“These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions,” Ackman warned in a tweet thread.

“The government has about 48 hours to fix a-soon-to-be-irreversible mistake,” he wrote. “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. Otherwise, watch out below.”

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