U.S. government will not bail out Silicon Valley Bank, Yellen says

US Treasury Secretary Janet Yellen said on Sunday that the federal government will not bail out Silicon Valley Bank, but is working to help depositors 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 Facing the Nation, provided some details on 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 depositors, and we are focused on trying to meet 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.

America’s banking system is ‘very safe,’ Yellen said

“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.

Silicon Valley Bank started going bankrupt when customers, especially tech companies that needed cash while 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 the Federal Reserve has increased 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 available,” including the acquisition of Silicon Valley Bank by another institution. So far, no buyer has come forward.

Tom Quaadman, the US Chamber of Commerce’s executive vice president for Capital Markets Competitiveness, said in a statement that “we urge the administration to facilitate the acquisition as quickly as possible, 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 have been working all weekend with our banking regulators to design appropriate policies to address this situation,” Yellen said. “I cannot provide further details at this time.”

House Speaker Kevin McCarthy, Republican from California, told the Fox News Channel Sunday Morning Futures who hopes the administration will announce its next steps on Sunday.

“They have the tools to handle the current situation, they know it’s serious and they’re trying to make some announcements 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.

A bank collapse may prompt people to make another transfer

Sen. Mark Warner, Democrat from Virginia, said in an interview with ABC News This week he worries that the bank’s collapse could make people nervous about transferring 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.”

US President Joe Biden and California Governor Gavin Newsom spoke of “efforts to address the situation” on Saturday, although the White House did not provide additional details on next steps.

Newsom said his 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.”