US Officials Working to Ensure ‘Contagion Can’t Occur’ After SVB Crisis, Yellen Says

Janet Yellen, Treasury secretary, stated that the U.S. will not bailout Silicon Valley Bank (SVB) on March 12. However she admitted that officials must prevent a spread of the financial crisis.

There have been many fears of contagion since the collapse in SVB. Experts warn that this could affect both small and large banks, particularly those that aren’t well-capitalized.

Interview with CBS “Face the Nation” Yellen said on Sunday that a bailout is not possible as authorities are focusing their attention on depositors. She noted that regulators have determined that SVB’s problems do not pose a greater risk to other banks.

“We want to make sure that the troubles that exist at one bank don’t create contagion to others that are sound,” The former Federal Reserve head stated these words. “And our goal always is supervision and regulation is to make sure that contagion can’t occur.”

Yellen did not comment on the details of the case, but she noted that “we certainly are working to address the situation in a timely way.”

According to a White House statement, President Joe Biden spoke to Governor Gavin Newsom in California Saturday to discuss ways to address the problems facing SVB and possibly the wider financial sector.

After her appearance before House Ways and Means Committee she met with officials from FDIC and the Federal Reserve.

FDIC Announced Friday’s announcement stated that the company would cover deposits up to $250,000 and could pay clients as early Monday.

“All insured depositors will have full access to their insured deposits no later than Monday morning, March 13, 2023,” In a statement, the federal agency stated. “The FDIC will pay uninsured depositors an advance dividend within the next week. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds. As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.”

Many of SVB’s customers tend to be small businesses so there are fears that they may not be able to pay their employees over the next few days. There is speculation that the FDIC may take extraordinary measures to financially aid affected businesses with their payrolls.

Sheila Bair was a former Chair of the FDIC from 2006 to 2011. “the best outcome” It would be possible to find a private buyer for SVB.

Contagion?

Larry Kotlikoff (a world-renowned economist and professor in economics at Boston University) is concerned about a possible contagion.

Kotlikoff was featured in a Substack article. Noted The current situation could lead to a run on large banks and depositors. “bad” banks.

“Leveraged banking survives on confidence and successive failures means further and further loss of confidence. This is why bank failures happen serially not simultaneously,” He wrote. “The weakest banks fail first, then the next weakest, and off we go. And failures in one country rattle lenders in another.”

Bill Ackman, a billionaire hedge fund manager, stated in a tweet that the federal government would have 48 hours to correct the situation “a soon-to-be-irreversible mistake.” Global financial markets have learned that uninsured deposits are nothing more than “an unsecured illiquid claim on a failed bank,” Ackman said.

“Absent @jpmorgan @citi or @BankofAmerica acquiring SVB before the open on Monday, a prospect I believe to be unlikely, or the gov’t guaranteeing all of SVB’s deposits, the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs),” He Write.

Critics claim that taxpayer money should not be used to bail out SVB. But Anthony Scaramucci thinks it should. “about stopping contagion and protecting the system.”

“It isn’t a political decision to bailout SVB. Don’t make the Lehman mistake. It isn’t about rich or poor [or] who benefits, it’s about stopping contagion and protecting the system. Make depositors whole or expect lots of tragic unintended consequences,” Write Former communications director for the Trump administration.

No matter which option was chosen, the U.S. Chamber of Commerce asked the White House for swift and effective actions, including a “quick acquisition, guaranteeing all bank depositors have access to their cash.”

“The bank’s depositors, including a high concentration of businesses in the technology sector and startup ecosystem, need certainty that they will be able to access their cash. This will allow businesses to make payroll, pay their rent, and still keep an eye towards growth,” Tom Quaadman is the Executive Vice President of U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness.

Bloomberg reported Federal regulators started an auction for SVB Saturday. Final bids were scheduled for Sunday.

SVB’s collapse 48 hours later is a story that confirms that the financial institution was not “really prepared for long-tail risks,” Sandy Fliderman, Industry FinTech’s CTO, says that the financial technology firm supports startups that rely on venture capital.

“There is no knowing if the management team at SVB violated any rules or operated improperly,” Fliderman spoke for The Epoch Times. “We may only learn over time what really transpired there. But, if SVB or any other similar firm would embrace the functions that help define a quality, compliant organization, then maybe the seemingly instantaneous collapse may not have happened as quickly and have been as such a shock.”

SVB played an important role in the success of thousands of technology startups. In 2008, it was the most significant U.S. bank bankruptcy since Washington Mutual.