Yellen rejects Silicon Valley Bank bailout as regulators auction assets | Banking

The US treasury secretary, Janet Yellen, said on Sunday there would be no bailout for Silicon Valley Bank, which collapsed this week, raising fears of a crisis, but also said the Biden administration was working with regulators to help depositors hit by the fall of SVB.

Yellen said conditions did not match the 2008 financial crisis, when the collapse of large institutions threatened to bring down the global financial system. She also sought to calm fears the $23tn US banking system could be affected by the fall of a regional bank.

“The American banking system is really safe and well-capitalised, it’s resilient,” Yellen told CBS’s Face the Nation. “Americans can have confidence in the safety and soundness of our banking system.

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place means we are not going to do that again.

“But we are concerned about depositors and are focused on trying to meet their needs.”

Citing anonymous sources, Reuters reported that the US was expected to make a “material” announcement of plans to shore up SVB deposits and prevent fallout.

“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said.

The sudden failure of a California bank with assets valued at $212bn, which primarily lent to tech startups, rattled investors.

On Friday, SVB was placed under the control of the Federal Deposit Insurance Corporation (FDIC), which guarantees deposits up to $250,000. Many companies and individuals stand to lose more than half of deposits in excess of that, according to some estimates.

Mark Warner, a Virginia Democrat on the US Senate banking committee, said SVB had been “caught in a bind” by higher interest rates. A run on the bank last week, with $42bn withdrawn on Thursday alone, was accelerated by “some actors”, he told ABC’s This Week.

Warner said he had been in talks with regulators, the White House and the Federal Reserve. The best outcome, he said, would be to find a buyer for SVB assets before markets opened in Asia.

“That would be best,” he said, adding: “Shareholders in the bank are going to lose their money. Let’s be clear about that. But the depositors can be taken care of, and the best outcome will be an acquisition of SVB.”

Warner indicated consensus that “shareholders of [SVB] ought to lose their money. Depositors have been a different circumstance, but there are questions around moral hazard”.

Ro Khanna, a progressive congressman from California, called on the government to ensure “all depositors will be protected and have full access to their accounts [on] Monday morning”.

Khanna said an “ideal situation” would be for a private acquisition of SVB with guarantees from Washington.

“They need to take decisive action. Time is ticking,” he told CBS.

Responding to reports that the SVB chief executive, Gregory Becker, sold $3.6m in stock weeks before the collapse, Khanna said the “money should be clawed back” and “given to the depositor”.

A Fox Business commentator, Charles Gasparino, tweeted that SVB depositors had been told they would “receive 30% to 50% of their money [on] Monday and most of the rest over time if there is no solution”.

An FDIC auction of SVB assets began on Saturday with final bids due by Sunday afternoon, Bloomberg reported.

SVB held more than $175bn in deposits, most uninsured. The auction is designed to make those deposits available as soon as Monday, when the federally managed bank reopens.

The director of the White House Office of Management and Budget, Shalanda Young, told CNN’s State of the Union the situation was being taken “seriously” and attempted to soothe fears that regional banks might be affected.

US banking “has a better foundation than before the financial crisis largely due to the reforms put in place after the financial crisis,” Young said, adding that reforms gave “regulators more tools, and our system is more resilient and the foundation stronger because of it”.

Current and former financial officials in Washington indicated the SVB collapse did not warrant intervention. A former FDIC chair, Sheila Bair, told NBC’s Meet the Press that SVB was a $200bn bank in a $23tn industry.

“I think it’s going to be hard to say that this is systemic in any way,” she said.

The Fed and the FDIC were considering the creation of a fund to backstop deposits at banks that run into trouble, Bloomberg reported.

On Saturday, the White House said Joe Biden had spoken to the governor of California, Gavin Newsom.

“Everyone is working with FDIC to stabilize the situation as quickly as possible,” Newsom said.

The risk and financial advisory firm Kroll said it was “unlikely that an SVB-style bankruptcy will extend to the large banks”. But it warned that small community banks could face problems, a risk “much higher if uninsured depositors of SVB aren’t made whole”.

Regional banks that have seen values plunge include Signature Bank, First Republic Bank, Western Alliance and PacWest.

The failure of SVB “could be the first cockroach in the cellar”, the investment manager Fredric Russell told the Wall Street Journal. The failed bank was reportedly without a risk management officer for months before it collapsed.

“Banks get thrown into the dark pool of complacency, and then they lower their quality standards,” Russell said.

Bill Ackman, a billionaire hedge fund manager, said failure to protect SVB depositors could spark withdrawals of uninsured deposits elsewhere.

“These withdrawals will drain liquidity from community, regional and other banks and begin the destruction of these important institutions,” Ackman warned.

“The government has about 48 hours to fix a-soon-to-be-irreversible mistake. The unintended consequences of the government’s failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below.”

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