WILMINGTON, Del. (AP) – Treasury Secretary Janet Yellen said Friday that the federal government will not bail out Silicon Valley Bank, but will use it to help depositors who are worried about their money.
The Federal Deposit Insurance Corporation guarantees deposits up to $250,000, but many companies and wealthy individuals who use the bank – known for its ties to technology startups and venture capital – have more than that amount in their accounts. There are fears that some workers across the country will not receive their salaries.
Yellen, in an interview with CBS’ “Face the Nation,” provided some details about the government’s next steps. But he insists the situation is very different from the financial crisis almost 15 years ago, which led to bank bailouts to protect the industry.
“We won’t do it again,” he said. “But we are concerned about our depositors, and we are focused on meeting their needs.”
With Wall Street rattled, Yellen tried to reassure America that there would be no domino effect after the collapse of Silicon Valley Bank.
“The American banking system is very safe and well capitalized,” he said. “It’s tenacity.”
Silicon Valley Bank is the 16th largest bank in the country. It was the second largest bank failure in US history after the collapse of Washington Mutual in 2008. The bank is mostly staffed by technology and venture capital-backed companies, including some of the industry’s best-known brands.
Jeff Chiu via the Associated Press
Silicon Valley Bank started going bankrupt when customers, especially tech companies that needed cash because they were struggling to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals, leading to the biggest failure of a US financial institution since the financial crisis.
Yellen described rising interest rates, which have been increased by the Federal Reserve to fight inflation, as a core issue for Silicon Valley Bank. Many assets, such as bonds or mortgage-backed securities, lose market value as rates rise.
“The problem with the technology sector is not a problem at this bank,” he said.
Yellen said she expects regulators to consider “the various options that are available,” including the acquisition of Silicon Valley Bank by another institution. So far, no buyer has come forward.
Tom Quaadman, executive vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competition, said in a statement that “we urge the administration to ease the acquisition quickly, ensuring all bank depositors have access to cash.”
The regulator seized the bank’s assets on Friday. Deposits insured by the federal government should be available Monday morning.
“I’ve been working all weekend with banking regulators to design appropriate policies to address this situation,” Yellen said. “I can’t give you more details right now.”
House Speaker Kevin McCarthy, R-Calif., told Fox News Channel’s “Sunday Morning Futures” he hopes the administration will announce its next steps on Sunday.
“They have the tools to deal with the current situation, they understand the severity of this and they are trying to try to announce some before the market opens,” he said.
McCarthy also expressed hope that Silicon Valley Bank would be acquired.
“I think it would be the best outcome to go ahead and lose the market and let people know that we can move forward the right way,” he said.
Sen. Mark Warner, D-Va., said in an interview with ABC News “This week” that he is concerned that the collapse of the bank can get nervous to transfer money from other regional banks to larger institutions.
“We don’t want further consolidation,” he said.
Warner suggested there would be a “moral hazard” in returning deposits beyond the $250,000 limit and said an acquisition would be the best next step.
“I’m more optimistic this morning than I was yesterday afternoon at this point,” he said. “But, again, we’ll see how that plays out over the rest of the day.”
He added: “What we have to focus on now is how to make sure there is no contagion.”
President Joe Biden and Gov. Gavin Newsom, D-Calif., spoke of “efforts to address the situation” on Saturday, although the White House did not provide additional details on next steps.
Newsom said the goal is to “stabilize the situation quickly, to protect jobs, people’s livelihoods, and the entire innovation ecosystem that has been the tent pole for our economy.”
Associated Press reporter Hope Yen contributed to this report from Washington.