On Mar. 12, United States Treasury Secretary Janet Yellen assured Silicon Valley Bank (SVB) depositors that policies were being discussed to recover lost funds.
Bail Out or Not
Speaking during CBS’s Face the Nation, Yellen reassured SVB depositors and dismissed the idea of a bailout, stating that “the reforms that have been put in place means we are not going to do that again.”
She added that the United States banking system is “safe and well-capitalized” and “resilient.”
This news came amidst fear that most of SVB’s customers are uninsured under the Federal Deposit Insurance Corporation (FDIC). This means most, including startups with funds at the tech lender, would have to fend for themselves. Some have been prompted to sell their deposits to pay salaries and other operating expenses before next week to avert liquidity pressures.
The complication arises because almost 96% of SVB’s customers were not covered by the FDIC insurance policy, which guarantees deposits up to $250,000.
The FDIC has said it would pay uninsured customers an “advance dividend” within the week, which would be a percentage of their deposits. However, this has not appeased those calling for a more comprehensive solution.
Anthony Scamarucci of SkyBridge Capital and billionaire hedge fund investor Bill Ackman issued urgent calls on Mar. 11, warning of a run on all but the biggest banks if the government cannot guarantee all of SVB’s deposits.
Some fear the looming threat of SVB’s crash will leave crypto startups vulnerable to takeovers, introducing even more bad players to the sphere.
While some lawmakers have opposed a bailout, there is little consensus about the path forward. Senators like Bob Menendez referred to the morality of a bailout, stating that he is not ready to go down such a morally hazardous path.
The United States government is working on appropriate policies
Despite fears of a banking crisis and contagion, Yellen stated that the government worked all weekend with banking regulators to design appropriate policies and options to address the situation.
Speculation is that an auction process is underway to find a buyer for the failed lender. The FDIC aims for a speedy resolution, with final bids due by Sunday.
However, a winner may not be announced until later, and there is no guarantee that a deal will be reached.