Treasury Secretary Janet Yellen delivers remarks during a press
conference at the Treasury Department in Washington, on July 28, 2022.
(Win McNamee/Getty Images)
Treasury Secretary Janet Yellen announced Sunday that the federal government wouldn’t bail out the now-collapsed Silicon Valley Bank (SVB) but said it will work to aid depositors who are worried about their money.
During a Sunday interview with CBS News’ “Face the Nation,” Yellen did not provide many concrete details about what her agency or what the Federal Deposit Insurance Corporation might do to protect depositors’ cash. But the Treasury secretary, formerly an Obama-era Federal Reserve chair, emphasized that SVB’s situation was different than the financial crisis that erupted in 2008, which led to widespread bailouts of financial companies in what government officials at the time said was designed to protect the industry and larger U.S. economy.
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.”
U.S. regulators are working quickly to address any possible contagion before markets open Monday in Asia, Yellen confirmed. She did not provide further details about those steps.
“We certainly are working to address the situation in a timely way,” she said.
With Wall Street bracing for the collapse’s impact on Monday, Yellen attempted to reassure Americans that there will be no domino effect. SVB, which mainly served technology companies and tech investors, is the nation’s 16th-largest bank and was the second-biggest bank failure in American history following the collapse of Washington Mutual in 2008, which at the time, was a catalyst for the subsequent economic downturn.
“The American banking system is really safe and well capitalized,” she said. “It’s resilient.”
Reports have indicated that upwards of 85 percent of SVBs accounts weren’t insured. When asked about whether that money will be returned, Yellen appeared to be noncommittal.
“I’m not going to comment on the details of the situation at this point. I simply want to say that we’re very aware of the problems that depositors will have, many of them are small businesses that employ people across the country,” the Treasury chief told CBS. “And of course, this is a significant concern, and working with regulators to try to address these concerns.”
“I really can’t comment on what the impact will be. I think it depends on how this situation is resolved,” she said. “And that’s something that we’re working on. But well aware that many startup firms have deposits and venture capital firms have deposits at this bank that have been affected by its failure. So this is something we’re working to try to resolve.”
SVB started its downward slide to insolvency when its depositors started withdrawing their deposits en masse amid concerns about the bank’s health. The bank then had to sell bonds at a loss to cover those withdrawals, leading to a sudden collapse before regulators in California closed the bank and appointed the U.S. FDIC to take over
Later in the CBS interview, Yellen noted that rising interest rates—hiked by the Federal Reserve in what its board members say is a bid to combat decades-high inflation—is the core problem for Silicon Valley Bank. Assets such as mortgage-backed securities and bonds lost their market value as interest rates climbed, she noted.
On Saturday, more than 3,000 CEOs and company founders representing some 220,000 workers signed a petition to appeal to Yellen and other officials to backstop SVB’s depositors. They warned that more than 100,000 jobs could be cut if no action is taken.
The petition called for “stronger regulatory oversight and capital requirements for regional banks” and sought a probe into any “malfeasance or mismanagement” by SVB executives, according to the Reuters news agency.
At the same time, some billionaires and analysts have noted that the bank’s collapse should serve as a warning to Americans that the U.S. economy may be sliding into a downturn. One billionaire hedge fund investor, Bill Ackman, wrote a lengthy Twitter thread Saturday saying the U.S. government has only 48 hours to fix the problem, suggesting that the contagion could spread.
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