On Sunday evening, Joe Biden released a press release promising to give a speech tomorrow morning to “strengthen confidence” in the banking system of the United States.
Read the press release via WhiteHouse.Gov:
Over the weekend, and at my direction, the Treasury Secretary and my National Economic Council Director worked diligently with the banking regulators to address problems at Silicon Valley Bank and Signature Bank. I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe. The solution also ensures that taxpayer dollars are not put at risk.
The American people and American businesses can have confidence that their bank deposits will be there when they need them.
I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.
Tomorrow morning, I will deliver remarks on how we will maintain a resilient banking system to protect our historic economic recovery.
Earlier today, Treasury Secretary Janet Yellen announced that the federal government wouldn’t bail out the now-collapsed Silicon Valley Bank (SVB). The second-biggest bank failure in history led to regulators taking over the bank on Friday.
During an interview on Sunday with CBS News’ “Face the Nation,” Yellen talked in general about what the Federal Deposit Insurance Corporation might do to protect the money of depositors. But the former Federal Reserve chair under Obama emphasized that SVB’s situation was different than the financial crisis in 2008, which led to massive bailouts.
Yellen did try to reassure the public that the Treasury Department was working to contain a potential bank contagion.
Janet Yellen on whether the SVB collapse could lead to other bank failures and spillover into the economy:
“We want to make sure that the troubles that exist at one bank don't create contagion to others that are sound.” pic.twitter.com/Wxs4Ne8uHl
— Becker News (@NewsBecker) March 12, 2023
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said.
On Sunday, a second bank collapse has led to an FDIC intervention: Signature Bank of New York. The bank is being closed due to “systemic risk.”
The Treasury Department and Federal Reserve Board on Sunday issued a joint press release on the closing of SVB and Signature Bank.
Nick Timiraos of the Wall Street Journal reported that “[a]ll depositors of Silicon Valley Bank and Signature Bank will be fully protected, shareholders and certain unsecured debtholders will not be protected and there is a new Fed 13(3) facility announced with $25 billion from ESF to backstop bank deposits.”
“After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors,” the statement read. “Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
“We are also announcing a similar systemic risk exception for Signature Bank, New York, New York, which was closed today by its state chartering authority,” the statement continued. “All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.”
“Shareholders and certain unsecured debtholders will not be protected,” the statement added. “Senior management has also been removed. Any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law.”
“Finally, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors,” it continued.
On Sunday, Yellen added in her interview that the Treasury Department is working to aid depositors who are worried about their money.
The FDIC only insures deposits of up to $250,000 per account, analysts have said that a number of firms and wealthy investors had far more than the insured amount tied up in SVB. There have been concerns that workers at some tech companies and startups will not see their paychecks now.
“Well let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking” to bail out SVB, Yellen said Sunday in response to a question about a possible bailout of the bank. “And the reforms that have been put in place means that we’re not going to do that again,” she added. “But we are concerned about depositors and are focused on trying to meet their needs.”
Armand Domalewski in a Twitter thread sought to clear up some confusion about what the bank failures mean for depositers.
“[P]eople are getting very confused about this whole Silicon Valley Bank / FDIC issue, so here’s a thread: -Majority of accounts over $250k are BUSINESSES, not individuals-While FDIC is only required to pay out up to $250k, in practice, they tend to arrange a sale…”
people are getting very confused about this whole Silicon Valley Bank / FDIC issue, so here's a thread:
-Majority of accounts over $250k are BUSINESSES, not individuals
-While FDIC is only required to pay out up to $250k, in practice, they tend to arrange a sale…
— Armand Domalewski (@ArmandDoma) March 10, 2023
“It would be very bad if we just let every account with over $250k in deposits lose all its money—SVB had almost 40k customers, most of whom are businesses that employ people. You’re talking about firing tens of thousands of people because of their bank!” he added.
“While FDIC is legally required to cover up to $250k, in practice the FDIC tries to find another bank to buy the failing bank and try to make all depositors whole. Insured depositors are paid first, uninsured next, and equity holders / lenders last,” he continued.
“FDIC doesn’t usually end up putting in a lot of $ at all; whatever the gap is between deposits and liabilities tends to get made up by stockholders and lenders,” he added. “And anything they do put in is made up for by charging banks higher insurance premiums. FDIC is not taxpayer funded.”
“The tl;dr is: The FDIC is not likely to ‘bail out’ the deposit holders of SVB, it’s likely going to make the people who invested in SVB or loaned it money eat the losses, and if does need to put in money, it’ll pay for it by charging other banks higher premiums,” he said. “One final thought: why would another bank be willing to buy a failing bank? Well, for one, they’re gonna be able to “buy” it for free—equity holders in SVB are getting wiped out. For two, banks pay a lot of money to acquire customers—and this hands them a ton of customers!”
Whatever the Biden administration does, let’s hope for the good of America that it does not make the matter worse. Coming off the Covid pandemic response debacle, a proxy war in Europe, and a worsening border crisis, an economic disaster is the last thing the nation needs right now.
Follow Kyle Becker on Twitter @kylenabecker.