US Treasury Secretary Janet Yellen said Sunday that the federal government will not bail out Silicon Valley Bank, but that it is helping money-conscious depositors.
The Federal Deposit Insurance Corporation (FDIC) guarantees up to $250,000 per account, but many of the businesses and wealthy individuals who used that bank — known for serving young tech startups and private equity — had much more. than that. There are fears that many employees will not receive their salaries.
Yellen, in an interview with CBS’s “Face the Nation” program, did not offer many details about the next steps the government will take in this regard. But he stressed that the situation is very different from the financial crisis of 15 years ago, when the government had to save many whites by injecting them with liquidity.
Silicon Valley Bank, headquartered in Santa Clara, California, is the 16th largest bank in the United States. It is the second largest banking collapse in US history after Washington Mutual in 2008. The bank primarily served tech employees and startup investment companies, including some of the best-known tech companies.
Silicon Valley Bank began to slide into insolvency as its clients, mostly technology companies in need of cash while struggling to obtain financing, began withdrawing their deposits. The bank had to sell bonds at a loss to cover withdrawals, leading to the worst collapse for a US financial institution since the height of the financial crisis.
Yellen pointed to rising interest rates, which the Federal Reserve has been raising to combat inflation, as Silicon Valley Bank’s core problem. Many of his assets, such as bonds and mortgage-backed securities, lost market value as rates rose.
“The problems with the technological sector are not the center of the problems of this bank,” he stressed.
Yellen said she expected regulators to consider “a wide variety of available options,” including another institution acquiring Silicon Valley Bank. So far, however, no potential buyers have raised their hands.
Sheila Bair, who chaired the FDIC during the 2008 financial crisis, recalled that with almost every bank collapse during that time, “we sold a failed bank to a healthy bank. And typically the buyer would also cover the uninsured amounts because they wanted the franchise value of those large depositors, so that would be the best case scenario.” But with the Silicon Valley Bank situation, she told NBC’s “Meet the Press” that this “was a liquidity crunch, a bank run, so they didn’t have time to prepare a sale of the bank. So they have to do it now and try to catch up.”
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