Yellen rules out bailout for bankrupt Silicon Valley bank

The US federal government has no plans to bail out the collapse of the Bank of Silicon Valley (SVB), Treasury Secretary Janet Yellen said on Sunday, but has pledged to help depositors whose money is stuck.

“We want to make sure that the problems that exist in one bank don’t create contagion for others that are solid,” Yellen said during an interview with CBS television.

On Friday, US regulators shut down the SVB in the biggest bank failure since the 2008/9 financial crisis, following a sudden run on deposits.

What else did Yellen say?

Yellen said the government is working with the Federal Deposit Insurance Corporation (FDIC) on a “resolution” for the SVB, where approximately 96% of deposits are not covered under the reimbursement scheme.

The FDIC guarantees deposits of up to $250,000 (€235,000), but many of the companies and wealthy people who used the bank had more than that amount in their accounts.

Yellen also told CBS that she worked with banking regulators over the weekend “to design appropriate policies to deal with this situation,” but said she couldn’t elaborate further.

“I’m sure they (the FDIC) are considering a wide range of available options that include acquisitions,” she added.

The Reuters news agency quoted unnamed government sources as saying a “relevant announcement” would be made later on Sunday, which some analysts said could be a merger with a larger bank.

House Speaker Kevin McCarthy told Fox News that he expected Silicon Valley Bank to be purchased.

“I think it would be the best result to move forward and cool the markets and let people understand that we can move forward in the right way,” he said.

US banking system ‘resilient’

Yellen attempted to reassure viewers concerned about a possible domino effect from the SVB failure. She insisted that the US banking system was safer than it was during the financial crisis nearly 15 years ago, which led to several bank bailouts.

“The American banking system is really safe and well capitalized,” said Yellen. “It’s tough.”

After the Lehman Brothers bankruptcy in 2008 and subsequent financial meltdown, US regulators required major banks to hold on to additional capital in case of trouble.

But some analysts warned that some US regional banks could be in trouble.

They include First Republic Bank, whose share price has dropped nearly 30% in two sessions on Thursday and Friday, and Signature Bank, a cryptocurrency-exposed lender, which has lost a third of its value since Wednesday night. fair.

What was the Bank of Silicon Valley?

SVB was little known to the public, but it was a major backer of technology startups in the United States and around the world and had strong relationships with venture capital firms.

By the end of 2022, it had become the 16th largest US bank by assets, with $209 billion in assets and approximately $175.4 billion in deposits.

However, the bank was impacted by the US central bank’s aggressive interest rate hikes last year, which hurt financial conditions in the early space.

Many of the SVB’s assets, such as bonds or mortgage-backed securities, lost market value as rates rose.

Then its customers — mostly tech companies that needed cash as they struggled to get funding — began to withdraw their deposits.

The bank had to sell bonds at a loss to cover the withdrawals.

Impact of SVB crash felt globally

Governments around the world said they were trying to find solutions to limit the possible impact of the collapse of SVB, which has subsidiaries in Canada, Europe and a joint venture in China.

India’s technology minister said on Sunday he would meet with startups this week to assess the impact of the collapse on them.

The South Asian country has one of the biggest startup markets in the world, with many billion-dollar valuations in recent years and backed by foreign investors.

“[I] for some founders and it’s pretty bad,” Ashish Dave, CEO of Asset Venture Investments (India), spokesperson for Mirae, wrote in a tweet.

“Especially for Indian founders … who started their companies in the US and raised their initial round, SVB is the default bank. Uncertainty is killing them. Growers are relatively safer as they diversify. The last thing founders need.”

O Financial Times reported that the British government was trying to find a buyer for SVB’s UK subsidiary and that a buyer from the Middle East had expressed interest.

UK Finance Minister Jeremy Hunt said earlier on Sunday that SVB’s bankruptcy could have a significant impact on British tech companies, given the importance of the lender to some customers.

Meanwhile, Israel’s bank supervisor Yair Avidan said he was closely monitoring the “immediate developments” of the collapse, as well as those that could happen in the future.

Israel’s technology sector is the country’s main growth engine and its relationship with the Silicon Valley region is strong.

Many Israeli-based startups had SVB accounts, although the amounts are not fully known.

mm/fb (AFP, AP, Reuters)