Janet Yellen, the U.S. Treasury Secretary, has stated that the government will not provide a bailout to Silicon Valley Bank (SVB) but will work towards aiding depositors who have been affected. Yellen made these remarks in an interview with CBS News's "Face the Nation" and attempted to allay fears that the bank's collapse could cause a domino effect in the banking industry. She emphasized that the American banking system is safe and well-capitalized.
Yellen explained that the government will not provide a bailout to SVB as the banking system has undergone reforms that prevent such actions from being taken. However, she expressed concern for depositors and stated that government officials are working to meet their needs.
SVB's collapse came after a bank run that resulted in the withdrawal of $42 billion. This was triggered by the announcement of SVB Financial Group's intention to sell $2.24 billion in new shares. This was seen as a desperate attempt to offset the $1.8 billion loss incurred by selling $21 billion of securities from its portfolio. Venture capitalists were spooked by this announcement, leading them to instruct their portfolio companies to withdraw their money from the bank, thus kickstarting the bank run. The FDIC seized SVB just two days after the bank run began.
SVB's failure is the largest bank failure in the United States since the collapse of Washington Mutual in 2008. This came just days after the collapse of Silvergate Capital, a crypto-focused bank. Approximately 85% of SVB's depositors held funds in accounts that were not FDIC-insured, and this could mean that the funds may not be retrievable. The FDIC insures deposits up to $250,000 for each ownership category at FDIC-insured institutions, of which SVB was a member.
"Janet Yellen's decision to bring stability and confidence to the crucial banking sector, despite the regrettable losses for shareholders and expected market turbulence, is a wise move," said market experts. The consequences of not taking action could have been extensive, not just for the United States but also for the global economy.
