On Monday, Silicon Valley Bank was congratulating itself for making Forbes magazine's annual ranking of the best banks in America.
Less than a week later, SVB imploded in the second-largest bank failure in United States history after Washington Mutual’s 2008 collapse.
Treasury Secretary Janet Yellen has since released a statement that the federal government will not bail out Silicon Valley Bank.
“Treasury Secretary Janet Yellen 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’.
Silicon Valley Bank, based in Santa Clara, California, is the nation’s 16th-largest bank. It was the second biggest bank failure in U.S. history after the collapse of Washington Mutual in 2008. The bank served mostly technology workers and venture capital-backed companies, including some of the industry’s best-known brands.
Silicon Valley Bank began its slide into insolvency when its customers, largely technology companies that needed cash as they struggled to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the largest failure of a U.S. financial institution since the height of the financial crisis.
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.
Sheila Bair, who was the FDIC chair during the 2008 financial crisis, recalled that with almost all the bank failures during that time, ‘we sold a failed bank to a healthy bank. And usually, the healthy acquirer would also cover the uninsured because they wanted the franchise value of those large depositors so optimally, that’s the best outcome’. But with Silicon Valley Bank, she told NBC’s ‘Meet the Press’, ‘this was a liquidity failure, it was a bank run, so they didn’t have time to prepare to market the bank. So they’re having to do that now, and playing catch-up’.
Regulators seized the bank’s assets on Friday. Deposits that are insured by the federal government are supposed to be available by Monday morning”. -Chris Megerian, Associated Press
The Federal Deposit Insurance Corporation seizing the Silicon Valley Bank’s assets in the middle of the business day is writing on the wall that the situation has grown extraordinarily dire.
In reaction to the Silicon Valley Bank’s collapse, the New York Department of Financial Services announced that it has taken possession of Signature Bank and appointed the Federal Deposit Insurance Corporation (FDIC) as the bank's receiver.
Despite U.S. financial regulators rolling out emergency measures such as ensuring that depositors with the failed bank would have access to all their money on Monday morning to stem potential contagion in the wake of the Silicon Valley Bank’s demise, the danger of contagion throughout the financial industry has stoked fears that depositors at other lenders, in particular smaller regional banks, would panic and rush to withdraw their money.