Silicon Valley Bank collapse: U.S. officials reportedly weigh backstopping depositors
Ryan King
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Top financial officials are reportedly weighing the possibility of backstopping Silicon Valley Bank depositors during the sprint to find a buyer.
Two options on the table are for regulators to tap into powers from the Federal Deposit Insurance Act to safeguard uninsured deposits at SVB or to establish a “general banking facility” from the Federal Reserve to buttress other financials with direct exposure to SVB, according to multiple reports.
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Officials are mulling over their options in hopes of averting contagion — a phenomenon in finance where turbulence from one institution ripples across the industry, causing runs on banks nationally. FDIC policy guarantees deposits of up to $250,000 remain insured, but SVB is full of deposits much larger than that.
On Saturday, the FDIC reportedly commenced an auction for bidders on SVB, aware of the political apprehension and fears of moral hazard that would come with a full-fledged government-funded bailout. Treasury Secretary Janet Yellen appeared to rule out a federal bailout of SVB Sunday.
But in the event that a buyer fails to emerge, officials at the FDIC, Treasury Department, and Fed are pouring through their options.
Members from both parties in Congress have emphasized the need to find a solution for depositors whose money wasn’t insured. Lawmakers that have spoken on the matter have also largely agreed that shareholders of SVB should not receive aid.
SVB collapsed Friday after investors became rattled with the company following revelations it sold numerous securities at a loss and moved to raise capital. SVB had been loaded up on treasuries which have been under pressure as the Fed jacks up interest rates. It has also been squeezed by belt-tightening and headwinds dogging the tech industry.
Millions of customer deposits were withdrawn during a run on the bank Thursday, prompting concerns that other similarly-situated backs could face a similar fate.
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Federal regulators took over the bank amid its collapse Friday. SVB was the 16th largest federally insured bank in the United States and the largest to falter since Washington Mutual in the 2008 financial crisis.
The company was founded in the 1980s to help tech startups. Top officials such as Yellen have voiced optimism that the SVB’s troubles are not indicative of a more systemic problem in the banking sector.