After sudden collapse of Silicon Valley BankThe Democratic Rep. in California Maxine Waters began frantically working the phones to find out what happened to the failed lender – and what would happen to its panicked depositors.
Waters, former chairman of the House Financial Services Committee, is skeptical that another bank will step up as a savior and buy the defunct institution.
“Banks don’t just wake up and say: ‘Oh, there’s a problem with another important bank and they’re going under. Let’s just replace it,”’ he said.
So began a hectic non-stop weekend briefing with regulators, lawmakers, administration officials and President Joe Biden himself about how to handle the demise of the nation’s 16th largest bank and a financial institution for tech entrepreneurs. The crux of the problem is that tens of billions of dollars – including the money companies need to meet payrolls – are sitting on Silicon Valley Bank accounts not protected by federal deposit insurance up to $250,000 only.
Something must be done, federal officials agreed, before Asian stock markets opened Sunday night and other banks faced the potential for waves of panic withdrawals. Monday morning.
“We are racing against the clock,” said Bharat Ramamurti, deputy director of the National Economic Council.
Waters is right to be skeptical about a sale that closes quickly. The bank’s size — $210 billion in assets — and complexity make it difficult to close a deal quickly.
Officials at the Federal Deposit Insurance Corp. Republican senators on Monday said they received offers for the bank over the weekend but did not have time to close; they said they might put Silicon Valley Bank up for auction again, according to a person familiar with the conversation who asked not to be identified to discuss a private call.
but another plan is coming. On Sunday, Waters was on the phone with Federal Reserve Chair Jerome Powell, informing him of how it would work. The Fed created a new emergency program that allows it to lend directly to banks so they can cover withdrawals without having to sell assets to raise money. The idea is to reassure depositors and prevent bank runs on other institutions.
By Sunday evening, the Treasury Department, the Fed and the FDIC said the the federal government protects all deposits — even those that exceed the $250,000 FDIC limit.
“It’s miraculous, really,” Waters said, calling it “an example of what teamwork is and what government can do with the right people in charge.”
The praise was not unanimous.
In Monday’s call to officials from the FDIC and the Treasury Department, Republican senators expressed concern that millionaire depositors in Silicon Valley were being bailed out — and the cost could be passed on to community banks in their states. home in the form of higher assessments for federal deposit insurance. , according to a person familiar with the discussion.
The turmoil began on Wednesday when Silicon Valley Bank said it needed to raise $2.25 billion to shore up its finances after suffering heavy losses on its bond portfolio, which fell in value as the Federal Reserve raised interest rates. interest rates. On Thursday, depositors rushed to withdraw their money. An old bank run is underway.
In a House Ways and Means committee hearing on Friday morning, Treasury Secretary Janet Yellen said her agency is “closely monitoring” developments related to the bank. “When banks experience financial losses, this is and should be a matter of concern,” he told lawmakers.
Biden was briefed on the situation Friday morning, according to a White House official who spoke on condition of anonymity to discuss private conversations. Then he celebrated an unexpectedly strong jobs report in February, met with the leader of the European Union and went to Wilmington, Delaware, to mark his grandson’s 17th birthday.
His weekend will soon be consumed by phone and video calls focused on preventing a nationwide banking crisis. Regulators were so worried, they didn’t wait until the close of business on Friday — the usual practice — to shut down the bank; they close the doors during working hours.
It’s the second-biggest bank failure in US history and it’s massive: An astonishing 94% of Silicon Valley Bank’s deposits – including huge cash holdings of tech startups – are gone’ y FDIC insurance.
As administration officials and regulators work through the weekend, Biden expressed concern about small businesses and their employees who rely on accounts that are now at risk, the White House official said.
There are also fears, the official said, that if Silicon Valley Bank depositors lose money, others will lose faith in the banking system and rush to withdraw money on Monday, causing in a cascading crisis.
The phone number of the Massachusetts Democratic Rep. Jake Auchincloss started to light up even before the weekend. Silicon Valley Bank has eight branches and offices in its home state, and word of its failure traveled fast on social media.
“The panic within the Massachusetts industry and nonprofit sectors became acute within hours,” Auchincloss said. “My phone started blowing up.”
Silicon Valley Bank isn’t the only bank to collapse. On Sunday night, federal officials based in New York announced Signature Banka major lender to New York landlords, also failed and was arrested.
The government’s plan to cover deposits over $250,000 also ended up applying to Signature customers.
In a statement on Sunday, Biden said, “Americans and American businesses can have trust that their bank deposits will be there when they need them.”
On Monday, Powell announced that the Fed will review its handling of Silicon Valley Bank to understand what went wrong. The review will be conducted by Michael Barr, the Fed vice chair in charge of bank supervision, and will be released on May 1.
Now Biden and lawmakers are calling for legislative changes to tighten financial rules on regional banks, perhaps rolling back parts of the Dodd-Frank law that tightened bank regulation after the financial crisis. finance in 2008-2009 but was returned five years ago.
Waters said it may be time to raise deposit insurance limits. “We can’t just say it’s an emergency and forget about it,” he said.