Ajit Karn
Washington: Sunday, US Treasury Secretary Janet Yellen stated that the government wished to prevent financial “contagion” from the implosion of Silicon Valley Bank (SVB), but ruled out a rescue of the institution.
During an interview with CBS, Yellen stated, “We want to ensure that the problems at one bank do not spread to other banks that are in good standing.”
Friday, US regulators shut down Silicon Valley Bank (SVB), a key lender to US entrepreneurs since the 1980s, after a run on deposits rendered it untenable for the medium-sized bank to continue operating on its own.
As a result of Silicon Valley Bank’s disclosure on Wednesday, investors punished the entire banking sector on Thursday, but by Friday, some of the larger banks’ stock prices had increased.
Regional lenders, such as First Republic Bank, which fell nearly 30 percent in two sessions on Thursday and Friday, and Signature Bank, a cryptocurrency-exposed lender, which has lost a third of its value since Wednesday evening, remained under pressure.
Yellen stated on Sunday that the government was collaborating with the US deposit guarantee agency, the FDIC, to “resolve” the situation at Silicon Valley Bank (SVB), where approximately 96% of deposits are not covered by the FDIC’s reimbursement guarantee.
She said, “I’m confident they (the FDIC) are contemplating a variety of options, including acquisitions.”
Yellen stated that the government was not contemplating a bailout for Silicon Valley Bank (SVB) due to revisions implemented after the 2008 financial crisis.
“During the financial crisis, investors and shareholders of large systemic institutions were bailed out… and the reforms that have been implemented ensure that we will never do that again,” she said.
Also read: Seized control of SVB due to its inability to meet depositors’ withdrawal demands
Note: Silicon Valley Bank (SVB) recently celebrated reaching Forbes magazine’s annual list of the top banks in America. In a Monday tweet, the bank conveyed its delight at being named to Forbes’ list for the fifth year in a row, as well as the publication’s inaugural Financial All-Stars list.
However, just five days later, the bank’s remark would take on a bitter irony when regulators seized control of the institution due to its inability to meet depositors’ withdrawal demands.
