Yellen rules out bailout for Silicon Valley Bank: "We're not going to do that again"
Washington — Treasury Secretary Janet Yellen said Sunday that the federal government will not provide a bailout for Silicon Valley Bank's investors after the bank was abruptly shuttered, but said financial regulators are "concerned" about the impact to depositors and working to address their needs.
"During the financial crisis, there were investors and owners of systemic large banks that were bailed out," Yellen said in an interview with "Face the Nation" on Sunday. "And the reforms that have been put in place means that we're not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs."
On Sunday, the Department of the Treasury, the Federal Reserve and FDIC said the government will be guaranteeing deposits for SVB account holders. "Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer," according to a joint statement released by the agencies.
The Federal Reserve on Sunday also announced the creation of a new Bank Term Funding Program (BTFP) to make additional funding available "to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors," according to a press release. "This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy."
California regulators shut down Silicon Valley Bank on Friday after depositors rushed to withdraw money last week amid concerns about its balance sheet. The Federal Deposit Insurance Corporation (FDIC) was appointed receiver, and regulators are working to find a buyer for the institution, which ranked as the 16th-largest bank in the U.S. before its failure.
The collapse of the 40-year-old bank, which catered to the tech industry, is the largest of a financial institution since the failure of Washington Mutual in 2008.
President Biden spoke with California Gov. Gavin Newsom about Silicon Valley Bank and the federal response on Saturday, and the FDIC spoke with members of the California congressional delegation late Saturday night.
Yellen said that in the wake of Silicon Valley Bank's failure, Treasury officials have been hearing from depositors, many of which are small businesses, and she has been working with bank regulators to "design appropriate policies" to address the situation, though she declined to provide further details. The FDIC, she said, is likely considering a "range of available options" to stabilize the situation, which could include an acquisition by a foreign bank.
"The American banking system is really safe and well-capitalized. It's resilient," she said. "In the aftermath of the 2008 financial crisis, new controls were put in place, better capital and liquidity supervision, and it was tested during the early days of the pandemic and proved its resilience. So Americans can have confidence in the safety and soundness of our banking system."
Still, Silicon Valley Bank's shutdown has prompted nervousness about whether it could trigger a run on other small and regional banks. Yellen, though, said financial regulators are working to prevent the fallout from spreading to other institutions.
"We want to make sure that the troubles that exist at one bank don't create contagion to others that are sound," she said. "The goal always of supervision and regulation is to make sure that contagion can't occur."
In its joint statement, the Department of the Treasury, the Federal Reserve and FDIC said measures were being taken to address the closure of another bank. "We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority. All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer," the statement reads.
Following the closure of Silicon Valley Bank, the FDIC said it created the Deposit Insurance National Bank of Santa Clara, to which insured deposits from Silicon Valley Bank were immediately transferred. All insured depositors will have access to their insured deposits by Monday morning, while uninsured depositors will receive an advance dividend within the next week, the FDIC said. Future dividend payments may be made to uninsured depositors as the FDIC sells Silicon Valley Bank's assets.
As of the end of 2022, Silicon Valley Bank had roughly $209 billion in total assets and about $174.5 billion in total deposits, according to the agency.
But more than 85% of Silicon Valley Bank's deposits were uninsured, according to estimates in a recent regulatory filing.
"We're very aware of the problems that depositors will have," Yellen said. "Many of them are small businesses that employ people across the country, and of course this is a significant concern and [we're] working with regulators to try to address these concerns."