Yellen Says No Bailout Planned for Silicon Valley Bank

Treasury Secretary Janet Yellen says the U.S. has no plans for a bailout of the collapsed Silicon Valley Bank.

However, the federal government is working to help depositors, Reuters reported Sunday (March 12), citing both comments from Yellen and unnamed officials who promised “material action” to stave off ongoing contagion from one of the largest banking failures in American history.

Appearing on CBS’ “Face the Nation” Sunday, Yellen said she had been working with regulators to craft “appropriate policies to address the situation” without offering further details.

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … and the reforms that have been put in place means we are not going to do that again,” Yellen said. “But we are concerned about depositors and are focused on trying to meet their needs.”

As PYMNTS reported, Silicon Valley Bank (SVB) was taken over and shut down Friday (March 10) by the California Department of Financial Protection and Innovation (DFPI), which placed it into receivership under the care of the Federal Deposit Insurance Corporation (FDIC).

In a news release, the DFPI cited Silicon Valley Bank’s “inadequate liquidity and solvency.”

Officials from the Biden administration have worked through the weekend to determine the impact of the bank’s implosion, paying close attention to how it will affect regional banks and the venture capital sector, sources told Reuters.

The report notes that the FDIC is scrambling to find another bank willing to merge with SVB in order to shore up deposits by the time the bank reopens Monday.

While the FDIC has taken steps to protect deposits of up to $250,000 at SVB, those accounts only make up 15% of deposits at the bank, with the rest uninsured.

Asked by CBS if depositors should be repaid in full, Yellen declined to comment in detail.

“We’re very aware of the problems that depositors will have. Many of them are small businesses, that employ people across the country. Of course this is a significant concern.”

PYMNTS wrote Friday that SVB’s loss could be the neobanking sector’s gain, though many of these companies are themselves startups, meaning it’s not clear whether they can handle a mass influx of new clients.

Also unknown is how far the contagion from the collapse will spread, and what effect it will have on FinTechs and new tech firms.

“The cash burn that SVB referenced in its announcement this week that it was seeking to shore up liquidity is real — and it will accompany these firms no matter where they park the funds they’ve (eventually) grabbed out of SVB,” PYMNTS wrote.