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Companies that have done business with Silicon Valley Bank have already warned that the bank’s failure could result in the layoffs and furloughs of thousands of workers, and many workers who won’t receive their next paycheck. I’m here.
Some experts fear a large number of firms could shift funds from SVB-like regional banks to safer giant commercial banks on Monday, leading to a new round of destabilization. are doing.
The move to complete Silicon Valley bank depositors without a buyer utilizes all bank-paid, U.S. taxpayer-backed insurance funds (usually funds that only cover deposits up to the Federal Deposit Insurance Corporation). The bill will need to pass through Congress. is capped at $250,000. However, over 90% of SVB’s accounts exceeded that limit. Critics of the use of the fund to help big depositors fear that other banks in a similar situation will come to expect federal authorities to swoop in and save them. He argues that it will set a precedent.
This could lead to a backlash, reflecting the anger directed at the government’s bailout of Wall Street during the 2008 financial crisis. But this time, taxpayers will be bailing out the tech lords, not the financial lords.
Another possibility is that the big Wall Street banks, fearing an outbreak, will acquire the rest of the SVB and make all their depositors complete. But it can be a tough gamble, and larger banks may seek federal help before agreeing to potentially unprofitable purchases.
“Every choice is a bad choice,” said MIT economist Simon Johnson, who previously served as chief economist at the International Monetary Fund. “You don’t want to extend this kind of relief to people.
The FDIC was created to provide federal aid to bank runs during the Great Depression. The FDIC is intended to insure only a portion of customer deposits. This is aimed at reducing taxpayer risk and discouraging customers from performing due diligence and leaving their deposits in banks. Take irresponsible risks.
But in Friday’s surprising move, FDIC officials who bought Silicon Valley Bank during normal trading hours are being asked to do more than just give money back to small customers.
On Friday, the FDIC said in a statement that everyone with an insured deposit (meaning an account worth less than $250,000) should have full access to their money by Monday morning. said it would. The statement said uninsured depositors (those with accounts over $250,000) would get some of their money back, but did not specify how much.Uninsured depositors overwhelm bank customers account for the majority.
In deciding how to respond, federal officials should consider the extent to which the risks posed by the collapse will affect other parts of the banking sector and the U.S. economy. Experts vary widely in their answers to that question. Many banking experts see SVB implosion as an exception confined to certain parts of the economy. This is important for a volatile tech sector, but little else, at least for now. Other parts of the banking system have not seen failures on the scale of the SVB, but Wall Street giants such as JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs Some of the stocks fell amid the turmoil.
“The question the Fed has to grapple with is how widespread this is. In that case, they would have to step in and exercise the powers they have. Member of the Massachusetts State House of Representatives.
Frank said he told senior Federal Reserve officials on Friday that the risks to the broader financial system could be “more widespread.”
Many federal regulators, including the FDIC, the Federal Reserve and the Treasury Department, have had private discussions with top lawmakers since the bank’s failure, including members of the House Financial Services Committee, which oversees banks, according to two people familiar with the matter. I have a briefing scheduled.
“The commission is in contact with regulators and is closely monitoring the situation,” said Laura Peavy, spokesperson for panel chair Rep. Patrick T. McHenry (RN.C.).
One member of the committee, Rep. Brad Sherman (D-California), said the government must “do everything possible to keep salaries met,” and that businesses cannot do it. Without it, he said, it would be an economic blow to states with thriving high-tech industries. Pay employees quickly because they don’t have access to deposits.
“The last thing I want to hear is that 40 companies will go bankrupt because they can’t do payroll… [and] They got it 40 weeks from now and their company is gone,” he said.
California Governor Gavin Newsom, a Democrat, said in a statement on Saturday that he had been discussing the situation with the Biden administration. The entire innovation ecosystem that has served as the tent for our economy. “
If the FDIC fails to find another bank to take over all of SVB’s operations, the unwinding of the bank’s balance sheet will begin within days. Customers who had uninsured deposits could receive some amount by next week, the FDIC said, though the amount was not disclosed. The FDIC is expected to sell the bank’s remaining assets and use the proceeds to pay uninsured depositors.
The FDIC has a fund for protected depositors that receives periodic payments from US banks. This fund is ultimately backed by US taxpayers. Todd Phillips, a former FDIC attorney and now a fellow at the Roosevelt Institute, a center-left think tank, said Congress would pass legislation allowing the FDIC to use insurance funds to protect uninsured deposits. Said it would have to pass. This raises the possibility of special federal assistance for uninsured depositors, a possibility that experts downplay.
“I think it’s unlikely that Congress will pass legislation to make these uninsured depositors perfect,” Phillips said. “The $250,000 cap is really meant to cover people, and Congress has historically shown little interest in bailing out companies with millions of dollars in their banks. I think it’s unlikely to start, but there’s something much stranger going on.”
SVB held about $150 billion in uninsured deposits, according to the company’s latest financial statements, issued late last month. According to Bloomberg News, this represents his more than 93% of the company’s deposits. Much of the deposit came from wealthy venture capitalists and tech firms, and although the exact percentage held by companies is unknown, Washington will face wrath for help. A vineyard in Roku, Calif., and a venture capitalist-backed philanthropy all together, he’s one of the SVB-funded companies.
SVB had over $200 billion in assets at the end of last year. California regulators estimate that about $40 billion has been withdrawn from the bank, suggesting he has nearly $160 billion in outstanding assets. Phillips acknowledges that the exact calculations are not immediately clear, but estimates that uninsured depositors could face losses of 10% to 15% from profits from the sale of these assets. I’m here.
The FDIC can coordinate work with the country’s other top authorities to regulate banks, the Federal Reserve Board, and the Treasury Department. On Friday afternoon, Treasury Secretary Janet L. Yellen said she called a meeting of top banking regulators but did not announce any action. Top White House economist Cecilia Rouse also expressed confidence in the banking system’s resilience on Friday.
Spokesmen for the Fed, FDIC and Treasury declined to comment on prospects for government support for uninsured deposits.
Calls for action rose on Friday and were expected to intensify. Former Democratic Treasury Secretary Larry Summers told The Washington Post that making all uninsured depositors whole would prevent a wider financial panic.
“We have to make sure that all deposits above the FDIC’s $250,000 limit are accepted. Banking is about trust,” said Rep. Eric Swalwell, D-Calif. said on Twitter“If depositors lose confidence in the safety of their over 250,000 deposits, they will be in trouble.”
Rep. Ruben Gallego (D-Arizona) murmured FDIC “must work to protect and maintain deposits above the 250,000 limit” [Arizonans’] Your money is protected. “
Garry Tan, CEO of Y Combinator, one of the most influential startup incubators in the industry, said: murmured Failure to act could be an “extinction level event” for start-ups, setting innovation back “by a decade or more,” he said. Craft Ventures general partner and longtime venture investor David Sacks also petitioned President Yellen and his Federal Reserve Chairman Jerome H. Powell directly for help. “Where’s Powell? Where’s Yellen? Stop this crisis now. I’m announcing that all depositors are safe. Placing his SVB in the top 4 banks.” sax tweeted“Do this before Monday’s opening, or you’ll be contagious and spread the crisis.”
Billionaire hedge fund manager Bill Ackman also predicted that without government intervention or the emergence of another bank to buy SVB, all but the big ones would rise on Monday, but he said it was unlikely.
As soon as the call for intervention began, protests began from the left and the right against the possibility of redress.
Congressman Matt Gaetz (R-Fla.) murmured“I do not support Silicon Valley Bank taxpayer bailouts.”
PolicyEngine Policy Analyst Max Ghenis said: wrote on twitter“A tiny, disproportionately rich share of U.S. employment is at stake. …how is this moot?
Another thorny issue is that SVB CEO Greg Becker served on the board of the Federal Reserve Bank of San Francisco from 2019 until Friday.
“There’s a balance to be struck here. The FDIC wants to maintain confidence in the market, but it’s certainly a question of how much the FDIC exceeds its statutory mandates,” said Cornell University economist. Eswar Prasad said. “I don’t think they stick their heads out that far.”
Gerrit De Vynck contributed to this report.
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