Treasury Secretary Janet Yellen appeared to hint on Sunday that the government might step in to fund uninsured deposits at Silicon Valley Bank, the tech-sector-focused bank that collapsed last week when panicked customers suddenly withdrew tens of billions of dollars.
The Federal Deposit Insurance Corporation, which took the bank into receivership on Friday, insures deposits up to $250,000. On Friday, the FDIC said all insured deposits would be available on Monday morning.
Most Silicon Valley Bank deposits, however, are above the insured limit. The FDIC said on Friday that it had not determined the amount of uninsured deposits but said depositors with amounts in excess of $250,000 would get an advance dividend next week. The amount of such a dividend has yet to be determined.
Some customers are worried they will not have access to funds needed to make payrolls and pay vendors next week. Bank regulators are concerned that panicked customers at other banks might also seek to withdraw their deposits on Friday, possibly putting more banks in jeopardy.
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said in an interview on Face the Nation on CBS Sunday. “We are concerned about depositors and are focused on trying to meet their needs.”
Yellen said that regulators were not looking to bail out banks with capital injections or measures similar to those taken in 2008.
“We’re not going to do that again,” she said.
Her comments, however, appeared to leave open the possibility of the government providing funds to make sure even uninsured deposits at Silicon Valley Bank were accessible to customers. Alternatively, the government could find a willing buyer for the deposits, most likely one of the largest U.S. banks.
Bloomberg News reported that the Federal Deposit Insurance Corp launched an auction process late Saturday for Silicon Valley Bank, with final bids due by Sunday afternoon. The winner of the auction may not be known until late Sunday, the Bloomberg report said.
Either would likely wipe out equity holders and holders of debt issued by the bank but ensure depositors would have access to funds.
In the ordinary course of a bank failure, uninsured depositors would receive something known as a “receivership certificate” that entitles them to recover funds as regulators sell off bank assets. The Federal Reserve could create a facility to lend against such certificates, a move that would encourage banks to accept them as deposits and provide liquidity to Silicon Valley Bank customers.
On Saturday, Republican presidential hopeful Vivek Ramaswamy urged the government not to bailout Silicon Valley Bank deposits but to raise the guarantee on other deposits to stem a run on the banks.
Here’s the right answer:
– No depositor amnesty for SVB depositors: let SVB fully fail.
– FDIC should get out of the way & let whoever wants to acquire SVB to actually do the deal.
– Monday morning: increase FDIC guarantee to [$10mm] for all banks. This prevents a run on other… https://t.co/kR9sBSKLG4— Vivek Ramaswamy (@VivekGRamaswamy) March 12, 2023
Others, including Congressman Ro Khanna (D-CA) have urged the government to protect all depositors of the bank.
Silicon Valley congressman Ro Khanna says “more clarity” needed from Treasury Department on Silicon Valley Bank response, adding that all depositors need to be protected and be made whole. pic.twitter.com/gTDVRTVPZ4
— Face The Nation (@FaceTheNation) March 12, 2023
Kevin McCarthy, the Speaker of the House, said an announcement could come as early as today.
“They do have the tools to handle the current situation,” McCarthy told Fox News’s Maria Bartiromo on Sunday. “They do know the seriousness of this and they are working to try to come forward with some announcement before the markets open. I’m hopeful something can be announced today.”
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