The Biden administration is set to brief all members of Congress on Sunday evening on efforts to ensure Silicon Valley Bank depositors have access to their funds after the collapse of the bank, sources familiar told CNN.
Treasury Secretary Janet Yellen on Sunday instructed the Federal Deposit Insurance Corporation to guarantee SVB customers will have access to all of their money starting Monday – an attempt to ensure public confidence in America’s banking system, Yellen, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin J. Gruenberg said in a joint statement.
The Treasury Department had told lawmakers earlier Sunday that the FDIC was prepared to “operate” SVB to ensure depositors can maintain payroll for their employees and that more operations will emerge in coming days, a source familiar with a briefing with California’s delegation told CNN.
US bank regulators had been weighing a series of emergency measures tied to the failed bank as they awaited the results of an auction designed to help contain the fallout.
There have 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. Spokespeople for the Treasury Department and White House had declined to comment on the internal deliberations.
The Washington Post first reported US officials are considering guaranteeing all uninsured deposits at the bank as the government looks for a potential buyer.
All of this comes as Yellen said Sunday the government wouldn’t bail out the bank, with a number of lawmakers speaking out against such an idea.
“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,” Yellen told CBS News when asked if there will be a bailout. “And the reforms that have been put in place means that we’re not going to do that again.”
Yellen said she’s been hearing from depositors all weekend, many of whom are “small businesses” and employ thousands of people. “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” the Treasury secretary said, declining to provide further details.
US officials were racing to secure a solution that would protect the bank’s depositors before financial markets open in Asia. Top officials at the Treasury Department, FDIC and Fed held a near continuous run of meetings and calls throughout the weekend as they’ve attempted to gauge the scale of the real, or perceived, risk stemming from the bank’s failure, both of which could drive dramatic market consequences in the week ahead.
The primary focus, however, had been in attempting to address the fate of those holding uninsured deposits – many of which are smaller companies that would likely have to weigh mass layoffs in the event they couldn’t access their funds to make payroll.
SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.
The chaos instigated by high interest rates led to the old-fashioned bank run on Thursday, in which depositors yanked $42 billion from SVB.
When the FDIC took control of the bank Friday, it said it would pay customers their insured deposits on Monday, which only covers up to $250,000. But there’s a lot of money – and influence – at stake.
SVB provided financing for almost half of US venture-backed technology and health care companies. At the end of 2022, the bank said it had $151.5 billion in uninsured deposits, $137.6 billion of which was held by US depositors.
Though a lot of money may have come out during the bank run and customers could receive some uninsured funds as the government liquidates SVB, they are still unsure if they can recover all their cash.
While relatively unknown outside Silicon Valley, SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC. It’s the largest lender to fail since Washington Mutual collapsed in 2008.
Despite initial panic on Wall Street over the run on SVB, which caused its shares to crater, analysts said the bank’s collapse is unlikely to set off the kind of domino effect that gripped the banking industry during the 2008 financial crisis.
Shalanda Young, the director of the White House Office of Management and Budget, stressed in a Sunday interview with CNN’s Kaitlan Collins that the US banking system at large was “more resilient” now.
“It has a better foundation than before the financial crisis. That’s largely due to the reforms put in place,” Young said on “State of the Union.”
But the collapse has prompted a bailout debate in Washington as lawmakers assess the fallout.
California lawmakers were unanimous in their agreement that the government should help find a buyer for the bank rather than bail it out, two sources familiar with Sunday’s briefing told CNN. Punchbowl News first reported the Treasury briefing with the California delegation.
“Our first and foremost concern must be with the workers affected and their paychecks,” Democratic Rep. Adam Schiff of California told CNN in a statement.
Republican Rep. Nancy Mace of South Carolina told Collins in a separate interview on “State of the Union” that she doesn’t support a bailout “at this time” but cautioned, “It’s still very early.”
“We cannot keep bailing out private companies, because there’s no consequences to their actions. People, when they make mistakes or break the law, have to be held accountable in this country,” she said.
House Speaker Kevin McCarthy told Fox News on Sunday he has spoken with Yellen and Powell about the collapse of SVB and believes “they do have the tools to handle the current situation.”
“They do know the seriousness of this, and they are working to try to come forward with some announcement before the markets open,” the California Republican said.
Another Californian, Democratic Rep. Ro Khanna, who represents much of Silicon Valley, said the Treasury Department needs to be more aggressive in making sure all depositors in SVB will have access to their money.
“The principle needs to be that all depositors will be protected and have full access to their accounts Monday morning,” Khanna told CBS News.
Khanna also made clear that investors and shareholders in SVB, which is headquartered in his district, should not be bailed out.
“I have no sympathy for the executives, no sympathy for the people who have stock there. But the depositors are protected,” he said.
Democratic Rep. Josh Gottheimer of New Jersey, a member of the House Financial Services Committee, sent a letter Sunday to Yellen, Powell, Gruenberg and Michael Hsu, the acting head of the Office of the Comptroller of the Currency, calling on them to “act swiftly.”
Gottheimer recommended the FDIC prioritize finding a buyer for SVB “that has the resources to provide a seamless transition for the bank’s depositors and borrowers,” according to a copy of the letter obtained by CNN.
Senate Banking Committee member Kevin Cramer said he hopes the collapse of SVB is “very localized and we can address it in that way.”
“The problem is we live in a very emotional time, where markets are emotional. The reference to social media as being an accelerator, if you will, of some of that emotion, I think, can be problematic,” the North Dakota Republican told NBC News. “But I hope with the weekend came some calm and certainly some strategy as well.”
This story and headline have been updated with additional reporting.