Treasury Secretary Janet Yellen stated on Sunday that the federal government will not bail out Silicon Valley Bank, but that the government is working to assist depositors who are concerned about their money.
The FDIC guarantees deposits up to $250,000, but many of the businesses and rich individuals that used the bank, which is known for its links with technology startups and venture capital, were holding over that amount in their accounts. Some employees across the country are concerned that they will not receive their paychecks.
In an appearance with CBS’ “Face the Nation,” Yellen gave few clues about the government’s future measures. She did, however, highlight that the scenario was vastly different from the financial crisis that occurred nearly 15 years ago, which resulted in bank bailouts to safeguard the industry.
“We’re not doing that again,” she declared. “However, we are worried about depositors and are working hard to accommodate their needs.”
With Wall Street frightened, Yellen attempted to reassure Americans that the failure of Silicon Valley Bank would not cause a domino effect.
“The American banking system is quite secure and well capitalized,” she claimed. “It’s tenacious.”
Silicon Valley Bank is the 16th largest bank in the United States. After the failure of Washington Mutual back in 2008, it was the second-largest such failure in US history. The bank mostly served technology workers as well as venture capital-backed businesses, which includes some of the industry’s most well-known names.
Silicon Valley Bank’s demise began when its customers, primarily technology firms in need of cash as they battled to obtain financing, started withdrawing their deposits. To fund the withdrawals, the bank had to sell bonds at a loss, resulting in the greatest failure of a U.S. banking institution since the peak of the financial crisis.
The primary difficulty for Silicon Valley Bank, according to Yellen, is rising interest rates, which have been raised by the Federal Reserve to fight inflation. Many of its assets, like mortgage-backed securities and bonds, have lost market value as interest rates have risen.
“The troubles with the tech sector aren’t at the heart of this bank’s problems,” she said.
Yellen predicted that authorities would look at “a broad range of potential possibilities,” including the acquisition of Silicon Valley Bank by some other institution. However, no buyer has yet to come forward.
On Friday, regulators confiscated the bank’s assets. Deposits that are federally insured are expected to be accessible by Monday morning.
“I’ve been working with our financial regulators all weekend to develop proper rules to deal with this issue,” Yellen added. “I’m afraid I can’t provide you with any more information at this moment.”
On Saturday, President Joe Biden and California Governor Gavin Newsom discussed “efforts to resolve the situation,” though the White House has not provided any additional details on the next moves.
The goal, according to Newsom, is to “stabilize the situation as soon as feasible, to protect people’s livelihoods, jobs, and the whole innovation ecosystem which has acted as a tent pole for our economy.”
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