OPINION: This article may contain commentary which reflects the author’s opinion.
There will be no assistance in the form of a bailout coming for Silicon Valley Bank after feds moved in following its collapse.
Treasury Secretary Janet Yellen said that the federal government will not step in to save the bank, the 16th largest in the nation.
“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,” she said on the CBS “Face The Nation” on Saturday.
“But we are concerned about depositors, and we’re focused on trying to meet their needs,” she said.
BREAKING: Janet Yellen Says No Bail Out for SVB But Has Concerns About Contagion to Other Banks
“We’re not going to do that [bail out] again…let me just say that we want to make sure that the troubles that exist at one bank don’t create contagion to others” pic.twitter.com/6aZUlBu5KG
— Chief Nerd (@TheChiefNerd) March 12, 2023
The Daily Mail reported.
The FDIC said insured funds up to a maximum of $250,000 will be available to depositors Monday morning.
For the uninsured deposits, the FDIC said it will pay depositors an ‘advanced dividend within the next week – but many fear they could lose substantial sums or face a long wait to get their cash back.
‘Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds,’ the agency said in a statement.
‘As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.’
Meanwhile, both the FDIC and Federal Reserve are working with firms on a potential merger with the failed institution.
Silicon Valley Bank collapsed after there was a run on the bank by failed depositors, mainly technology workers and venture capital-backed companies, started pulling their funds, Sky News reported.
The US Federal Deposit Insurance Corporation (FDIC) has seized its assets.
It said the bank had $209 billion (£173 billion) in assets and $175.4 billion (£146 billion) in deposits at the time of failure.
It was unclear how many of the deposits were above the $250,000 (£207,000) insurance limit.
The situation had become so dire that the feds seized the assets of the bank in the middle of the work day.
Worry began when SVB announced plans to strengthen its position by raising $1.75 billion.
“This was a hysteria-induced bank run caused by VCs,” Ryan Falvey, a fintech investor of Restive Ventures, said to CNBC. “This is going to go down as one of the ultimate cases of an industry cutting its nose off to spite its face.”
“The episode is the latest fallout from the Federal Reserve’s actions to stem inflation with its most aggressive rate hiking campaign in four decades. The ramifications could be far-reaching, with concerns that startups may be unable to pay employees in coming days, venture investors may struggle to raise funds, and an already-battered sector could face a deeper malaise,” CNBC said.
“The roots of SVB’s collapse stem from dislocations spurred by higher rates. As startup clients withdrew deposits to keep their companies afloat in a chilly environment for IPOs and private fundraising, SVB found itself short on capital. It had been forced to sell all of its available-for-sale bonds at a $1.8 billion loss, the bank said late Wednesday,” it said.
Bill Ackman, the founder and CEO of Pershing Square Capital Management, said in a Twitter thread that the government may have to bailout the bank.
“The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered,” he said.
“After what the Feds did to @jpmorgan after it bailed out Bear Stearns, I don’t see another bank stepping in to help @SVB_Financial.
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“The gov’t could also guarantee deposits in exchange for a dilutive warrant issuance and other covenants and protections. If @SVB_Financial is indeed solvent, this would buy time to enable SVB to restore the franchise and raise new private capital,” he said.
“To be clear, a bailout should be designed to protect @SVB_Financial depositors, not equity holders or management. We should not reward poor risk management or protect shareholders from risks they knowingly assumed.
The failure of @SVB_Financial could destroy an important long-term driver of the economy as VC-backed companies rely on SVB for loans and holding their operating cash. If private capital can’t provide a solution, a highly dilutive gov’t preferred bailout should be considered.
— Bill Ackman (@BillAckman) March 10, 2023
“The risk of failure and deposit losses here is that the next, least well-capitalized bank faces a run and fails and the dominoes continue to fall. That is why gov’t intervention should be considered,” he said.