Yellen rules out bailout for Silicon Valley Bank: "We're not going to do that again"
UPDATE: U.S. Government moves to secure Silicon Valley Bank depositors access to funds
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."
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.
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"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."
San Jose Mayor Matt Mahan blasted Yellen's approach Sunday afternoon, calling them "insufficient half-measures that put the nation's innovation economy and hundreds of thousands of U.S. workers at risk."
In a press release issued by his office, Mahan decried Yellen's refusal to guarantee customers' deposits or confirm when they might have access to these funds.
"The Secretary's approach is weak, half-hearted and wrong," Mahan said in the release. "We don't have time to wait for a white knight to swoop in and acquire the bank. Half of Silicon Valley's startups are at risk of missing payroll in the days ahead if the FDIC doesn't guarantee and give immediate access to their deposits."
"The Federal Government must restore confidence today and ensure account holders have full access to their deposits tomorrow morning," he added. "Otherwise, tens of thousands of workers are at risk across Silicon Valley, to say nothing of the risk of global financial chaos as depositors flee small and medium-sized banks around the world."
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."
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."