The United States federal government has no plans to bail out the collapsed Silicon Valley Bank (SVB), Treasury Secretary Janet Yellen said Sunday, but promised to help depositors whose money is stranded.
“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said during an interview with CBS television.
On Friday, US regulators pulled the plug on SVB in the largest bank failure since the 2008/9 financial crisis after a sudden run on deposits.
Meanwhile, in the UK, reports of several interested suitors in the bank’s British subsidiary emerged late on Sunday, shortly before the markets reopen on Monday.
What else did Yellen say?
Yellen said the government was working with the Federal Deposit Insurance Corporation (FDIC), on a “resolution” for SVB, where approximately 96% of deposits are not covered by the reimbursement scheme.
FDIC insures deposits up to $250,000 (€235,000), but many of the companies and wealthy people who used the bank had more than that amount in their accounts.
Yellen also told CBS she had been working with banking regulators over the weekend “to design appropriate policies to address this situation,” but said she couldn’t yet give further details.
“I’m sure they (the FDIC) are considering a wide range of available options that include acquisitions,” she added.
Reuters news agency cited unnamed government sources as saying a “material announcement” would be made later Sunday, which some analysts said could be a merger with a larger bank.
House Speaker Kevin McCarthy told Fox News he hoped that Silicon Valley Bank would be bought.
“I think that would be the best outcome to move forward and cool the markets and let people understand that we can move forward in the right manner,” he said.
US banking system ‘resilient’
Yellen tried to reassure viewers concerned about a possible domino effect from the failure of SVB. She insisted that the US banking system was safer than during the financial crisis almost 15 years ago, which led to several bank bailouts.
“The American banking system is really safe and well capitalized,” Yellen said. “It’s resilient.”
Following the 2008 failure of Lehman Brothers and the ensuing financial meltdown, US regulators required major banks to hold additional capital in case of trouble.
But some analysts have warned that some regional US banks could be in trouble.
They include First Republic Bank, whose share price slumped nearly 30% 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.
What was Silicon Valley Bank?
SVB was little known to the public but was a key lender to technology startups in the US and globally and had strong relationships with venture capital firms.
By the end of 2022, it had become the 16th largest US bank by assets, with $209 billion in assets and approximately $175.4 billion in deposits.
However, the bank was impacted by the US central bank’s aggressive interest rate hikes in the last year, which crimped financial conditions in the startup space.
Many of SVB’s assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.
Then its customers — largely technology companies that needed cash as they struggled to get financing — started withdrawing their deposits.
The bank had to sell bonds at a loss to cover the withdrawals.
British banks begin submitting bids for SVB’s UK branch
The UK’s Bank of London, a clearing bank that leads a consortium of private equity firms, submitted an official offer to take over UK branch of SVB Sunday. The proposal was submitted to SVB, the UK government and the Bank of England (BoE).
Other British banking institutions reported to be interested in the UK branch of the beleaguered California lender include OakBank North, which is owned by Japanese multinational SoftBank.
Media reports have suggested that HSBC (Hong Kong and Shanghai Banking Corporation) is also interested in the UK branch of SVB. Furthermore, Lloyds Banking Group and NatWest Group are said to have been approached about a possible emergency takeover.
The Bank of England has said that it will seek a court order to place SVB’s UK branch into insolvency.
In the US, observers at technology news site “The Information” say it is unlikely that big banks like JPMorgan or Bank of America will join in the race to take over SVP, noting that it is more plausible that smaller regional banks like PNC Financial, US Bank, Trust or Capital One would look to get involved.
Further impacts elsewhere in the world
Governments around the world said they were trying to find solutions to limit the potential hit to companies from the collapse of SVB, which has subsidiaries in Canada, Europe and a joint venture in China.
The state minister for technology in India said Sunday he will meet startups this week to assess the impact on them of the collapse.
The South Asian country has one of the world’s biggest startup markets, with many clocking multi-billion-dollar valuations in recent years and backed by foreign investors.
“[I] spoke to some founders and it is very bad,” Ashish Dave, CEO of Mirae Asset Venture Investments (India), wrote in a tweet.
“Especially for Indian founders… who set up their US companies and raised their initial round, SVB is default bank. Uncertainty is killing them. Growth ones are relatively safer as they diversified. Last thing founders needed.”
German business daily Handelsblatt said SVB had 3,600 customers in Europe. Around 10% of them were said to come from Germany.
Meanwhile, Israel’s Supervisor of Banks Yair Avidan said it was closely monitoring for “immediate developments” from the collapse as well for those that could happen in the future.
Israel’s tech sector is the country’s main growth engine and its relationship with the Silicon Valley region is strong.
Many Israel-based startups had accounts at SVB, although the amounts are not fully known.
js,mm/msh (AFP, AP, Reuters)
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