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Tipsheet

Yellen Makes the Right Call Over Silicon Valley Bank Collapse

Silicon Valley bank is no more. It’s the second-largest bank failure in American history, and some call for the Biden administration to say the dreaded “B” word to save it. As Spencer wrote last week, California officials and the Federal Deposit Insurance Corporation took control of this shambles of a financial institution. Even though it held over $200 billion in assets, the bank was exposed to fluctuations in the technology market. That sector has been taking a hammering.  This was one of the go-to institutions for this sector, and now we have a virtual run on the bank which could make for a very nasty opening bell tomorrow. Hence, the call for a bailout (via CNBC):

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Big names in Silicon Valley and the finance sector are calling publicly for the federal government to push another bank to assume Silicon Valley Bank’s assets and obligations after the financial institution failed on Friday. 

The Federal Deposit Insurance Corporation (FDIC) will cover up to $250,000 per depositor and may be able to begin paying those depositors as early as Monday. 

But the vast majority of SVB’s customers were businesses that had more than that on deposit at the bank. As of December, more than 95% of the bank’s deposits were uninsured, according to regulatory filings. Many of these depositors are startups, and many are concerned that they will not be able to make payroll this month, which in turn could spark a wide wave of failures and layoffs in the tech industry. 

Investors are concerned that these failures could reduce confidence in the banking sector, particularly mid-sized banks with under $250 billion in deposits. These banks are not deemed “too big to fail” and do not have to undergo regular stress tests or other safety valve measures passed in the wake of the 2008 financial crisis. 

Venture capitalist and former tech CEO David Sacks called for the federal government to push another bank to buy SVB’s assets, writing on Twitter, “Where is Powell? Where is Yellen? Stop this crisis NOW. Announce that all depositors will be safe. Place SVB with a Top 4 bank. Do this before Monday open or there will be contagion and the crisis will spread.”

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“Where is Yellen?” is a good question, and she answered it Sunday. There will be no bailout for Silicon Valley Bank (via Associated Press):

 

Treasury Secretary Janet Yellen said Sunday that the federal government would not bail out Silicon Valley Bank, but is working to help depositors who are concerned about their money. 

The Federal Deposit Insurance Corporation insures deposits up to $250,000, but many of the companies and wealthy people who used the bank — known for its relationships with technology startups and venture capital — had more than that amount in their account. There are fears that some workers across the country won’t receive their paychecks. 

Yellen, in an interview with CBS’ “Face the Nation,” provided few details on the government’s next steps. But she emphasized that the situation was much different from the financial crisis almost 15 years ago, which led to bank bailouts to protect the industry. 

“We’re not going to do that again,” she said. “But we are concerned about depositors, and we’re focused on trying to meet their needs.” 

“We’re not going to do that again,” she said. You got that right.

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