Yellen leaves door open to bail out uninsured deposits at Silicon Valley Bank
Treasury Secretary Janet Yellen appeared to hint on Sunday that the government could step in to fund uninsured deposits at Silicon Valley Bank, a tech-focused bank that collapsed last week when panicked customers suddenly withdrew tens of billions of dollars.
The Federal Deposit Insurance Corporation, which accepted the bank on Friday, insures deposits up to $250,000. On Friday, the FDIC said all insured deposits would be available Monday morning.
However, most deposits in Silicon Valley banks exceed the insured limit. On Friday, the FDIC said it had not determined the amount of uninsured deposits, but said that depositors with amounts in excess of $250,000 would receive an upfront dividend next week. The size of this dividend has not yet been determined.
Some customers are concerned that next week they will not have access to the funds they need to pay salaries and pay suppliers. Banking regulators are concerned that panicked customers at other banks could also try to withdraw their deposits on Friday, which could put even more banks at risk.
“We want to make sure problems that exist in one bank don’t infect others that are healthy,” Yellen said in an interview with CBS’s Facing the Nation on Sunday. “We care about contributors and are focused on meeting their needs.”
Yellen said regulators had no intention of bailing out banks with capital injections or measures like those passed in 2008.
“We’re not going to do it again,” she said.
However, her comments appear to leave open the possibility that the government will provide funds to ensure that even uninsured deposits at Silicon Valley Bank are available to customers. Alternatively, the government could find a buyer for the deposits, most likely in one of the largest US banks.
Or, most likely, it will destroy the holders of shares and holders of debt issued by the bank, but will ensure that depositors have access to funds.
In a typical bank failure, uninsured depositors receive something known as a “certificate of ownership” that entitles them to a refund as regulators sell off the bank’s assets. The Federal Reserve could create a lending facility for such certificates, which would encourage banks to accept them as deposits and provide liquidity to Silicon Valley Bank customers.
On Saturday, Republican presidential candidate Vivek Ramaswamy urged the government not to bail out Silicon Valley bank deposits, but to increase guarantees on other deposits to stem the bank run.
Here is the correct answer:
– No saver amnesty for SVB savers: let the SVB collapse completely.
“The FDIC should get out of the way and let whoever wants to buy SVB make a deal.
– Monday Morning: FDIC Guarantee Upgrade to [$10mm] for all banks. This prevents others from starting…— Vivek Ramaswamy (@VivekGRAmaswamy) March 12, 2023
Others, including Rep. Ro Hanna (R-Calif.), called on the government to protect all bank depositors.
Silicon Valley Congressman Ro Khanna says “more clarity” is needed from the Treasury Department about the Silicon Valley bank’s response, adding that all depositors must be protected and healthy. pic.twitter.com/gTDVRTVPZ4
— Face the Nation (@FaceTheNation) March 12, 2023
Kevin McCarthy, Speaker of the House of Representatives, said the announcement could be made as early as today.
“They have the tools to deal with the current situation,” McCarthy told Fox News’ Maria Bartiromo on Sunday. “They know the gravity of this and are working to make some kind of announcement before the markets open. I hope something can be announced today.”
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