American regulators are working through the weekend on an extraordinary plan to make Silicon Valley Bank customers whole after the financial institutions’ stunning and rapid collapse late last week.
Treasury, Federal Reserve and Federal Deposit Insurance Corp. officials over the past two days have worked with the Biden administration to develop facilities that would guarantee all uninsured deposits held by SVB customers.
Spokespeople for the Treasury Department and White House declined to comment on the internal deliberations. The Washington Post first reported the story, citing multiple sources familiar with the matter.
One way to guarantee the deposits: find another bank to buy SVB.
Federal officials spent the weekend pressing for an acquisition of the failed bank’s assets and attempted to serve as a facilitator for a private sector solution that would immediately address concerns of a dramatic crisis for holders of uninsured deposits in the bank.
The FDIC opened an auction Sunday for bids to acquire the bank, the Treasury Department said in a briefing with lawmakers in the California delegation, two sources familiar with the briefing told CNN.
But there have also been extensive discussions about the legal authorities tied to providing a federal backstop for the bank’s uninsured deposits, as well as a separate Federal Reserve facility that other banks with similar exposure could have access to in order to generate confidence in the market, according to two people familiar with the matter.
No final decisions have been made and the people familiar with the discussions stressed that the overwhelming effort has been directed toward finding a buyer for the failed bank’s assets.
Under Secretary for Domestic Finance Nellie Liang and Assistant Secretary for Legislative Affairs Jonathan Davidson led the briefing, during which they told members that the FDIC is prepared “to operate the institution” to ensure depositors can maintain payroll for their employees and that more operations will emerge in coming days, one of the sources said.
If a sale fails, customers could collect some of their uninsured deposits as the government unwinds and liquidates the bank’s assets to repay them. But it’s not clear that the companies invested with the bank would recover all or close to all the cash they had stored at SVB through a liquidation alone – that’s why the government is reportedly looking to guarantee the deposits through a taxpayer-funded facility.
The US government is trying to avoid two potentially risky scenarios from the SVB fallout, both of which could have dire consequences: Other banks with similar profiles to SVB could be next to fail if customers lose faith that they will have ample cash to fund their deposits. And the tech companies that kept their cash with Silicon Valley Bank could collapse if they are unable to make payroll or fund their operations with the $250,000 worth of deposits per account that the FDIC insures.
As of the end of last year, Silicon Valley Bank said it had $151.5 billion in uninsured deposits, $137.6 billion of which was held by American customers. Customers yanked $42 billion from Silicon Valley Bank on Thursday, leaving the bank with $1 billion in negative cash balance, the company said in a regulatory filing.
Treasury Secretary Janet Yellen has been in touch with financial regulators all weekend and working with them “diligently” following SVB’s collapse, White House Office of Management and Budget Director Shalanda Young told CNN’s Kaitlan Collins on “State of the Union.”
A bailout of Silicon Valley Bank itself is not under consideration, Yellen said in an interview with CBS Sunday.
“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 that we’re not going to do that again,” Yellen told CBS. “But we are concerned about depositors and are focused on trying to meet their needs.”
Yellen acknowledged the government may try to do something to shore up companies that had large, uninsured deposits with SVB.
“We’re well aware that many startup firms have deposits and venture capital firms have deposits at this bank that have been affected by its failure,” Yellen said. “So this is something we’re working to try to resolve.”
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