The collapse of Silicon Valley Bank has caused significant concern among its depositors, many of whom are small businesses that rely on access to their funds to pay bills and employ tens of thousands of people across the country.
Treasury Secretary Janet Yellen has been working all weekend with banking regulators to design appropriate policies to address the situation.
While Yellen has not provided further details, she emphasized that the American banking system is safe and well-capitalized, and in the aftermath of the 2008 financial crisis, new controls were put in place to ensure better capital and liquidity supervision.
Unique to Silicon Valley Bank?
When asked whether the problems that exist at Silicon Valley Bank are unique, Yellen stated that the government wants to ensure that the troubles at one bank do not create contagion to others that are sound.
She went on to say that the goal of supervision and regulation is to ensure that contagion cannot occur. However, Yellen did not provide further details on the situation.
With 85% of Silicon Valley Bank’s accounts uninsured, the question of whether depositors will be paid back in full has been raised. Yellen did not comment on the details of the situation but stated that she is aware of the problems depositors will have, especially small businesses that employ people across the country. Yellen emphasized that she is working with regulators to try to address these concerns.
Mismanagement?
Questions have been raised regarding mismanagement at the bank, with reports that the CEO sold about $3 million worth of shares 24 hours before the bank went under.
Yellen stated that the FDIC had placed the bank in receivership and would be working over the weekend to manage its resolution. She did not comment on the details of the situation.
With the Federal Reserve has aggressively raised rates to get control of the interest rate environment, concerns have been raised about further risks to the financial sector.
The economist emphasized that Americans need to feel confident that the banking system is safe and sound and that it can meet the credit needs of households and businesses. She stated that the government would work to ensure that these goals are realized.
Yellen says no major bailout
Yellen made it clear that the reforms that have been put in place mean that the government is not looking to bail out investors and owners of systemic large banks. However, she did state that the government is concerned about depositors and is focused on trying to meet their needs.
Yellen also discussed the $7 trillion budget proposal put forward by the President, stating that it invests in the economy in ways that will strengthen its growth.
The budget proposal invests in education, childcare, research and development, and eases the costs that households face for health insurance and prescription drugs.
Yellen emphasized that the budget proposal pays for these investments and reduces the budget deficits by almost $3 trillion over the next 10 years by asking high-income individuals and corporations to pay their fair share.
