US government rules out bailing out SVB but wants to avoid ‘contagion’
US Treasury Secretary Janet Yellen confirmed on Sunday that the government wants to avoid financial “contagion” after the failure of the Silicon Valley Bank (SVB), but ruled out bailing out the entity.
“We want to make sure that problems in one bank don’t cause a strong infection for others,” Yellen said during an interview with CBS.
US authorities closed the bank on Friday to protect the deposits of its customers.
The banking sector as a whole fell on Wall Street on Thursday, but shares of some of the largest banks rebounded on Friday.
However, regional lenders remained under pressure, including First Republic Bank, which fell nearly 30% in two sessions on Thursday and Friday, and cryptocurrency short-bank Signature Bank, which has lost a third of its value since Wednesday night.
Yellen said Sunday that the government is working with the US guarantee agency, the FDIC, to “resolve” the situation in the SVB, as nearly 96% of the bank’s deposits have no refund guarantee.
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“I’m sure they (the FDIC) are looking at a wide range of options available, including acquisitions,” she said.
Yellen emphasized that reforms implemented after the 2008 financial crisis closed the door to SVB’s bailout. “During the financial crisis, there were investors and big bankers who were bailed out…and the reforms that were put in place mean we won’t do that again,” he said.
The United Kingdom is on alert
The Minister for the Economy and Finance, Jeremy Hunt, warned on Sunday that the bankruptcy of SVB in California threatened to put the technology sector and companies in the UK healthcare sector at “grave risk”.
Hunt said the California-based entity manages money for some of the most promising companies in the UK.
“There is a serious risk to the technology and life sciences sectors, many of which deal with this bank,” Hunt said in an interview with Britain’s Sky News.
Hunt said the BoE governor had made it clear there were no systemic risks to the UK financial system.
The government will introduce plans “very soon” to ensure that citizens can meet their liquidity needs and pay their employees’ salaries. He added that the executive would also implement a long-term solution to reduce or avoid losses for British companies.
Britain’s Treasury insisted on Saturday that SVB’s problems were “company specific” and had no “implications for other banks operating in the UK”.
The Californian tech entity went bankrupt after its clients made huge withdrawals. His last attempt to raise new money was unsuccessful.
startups technology involved
SVB’s bankruptcy prevented tens of billions of dollars from being deposited there startup companies (entrepreneurship seeking to develop as a stable company) and private equity funds, sparking fears of a shock wave across the technology sector.
“Financial partner of the innovation economy” was the motto with which SVB introduced itself.
“They knew the entrepreneurial community,” said Joseph DeSimone, a professor at Stanford University and founder of several companies. startup companies. He estimated, “They helped us recruit people (…) advised new managers, (…) their disappearance is a real loss.”
SVB boasted that “nearly half” of its bioscience and technology companies are funded by US investors.
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The bankruptcy filing would allow each customer to recover up to $250,000, the maximum guaranteed by FDIC, the Federal Deposit Insurance Corporation.
But, according to SVB’s annual report, the share of uninsured deposits amounted to about 96% of the total $173 billion entrusted to the bank.
Returning those funds would depend on recoveries from the sale of the bank’s assets, the FDIC said on Friday, an often lengthy process with uncertain returns.
“The real victims of SVB’s downfall are depositors: startups with 10 to 100 employees who can no longer pay salaries will have to put people on technical unemployment or lay off on Monday,” Gary Tan responded on Twitter, CEO of Y Combinator, An incubator for startups.
“In a month or two, we’ll have wiped out a generation startups Americans,” warned the director. “Years of American innovation are at stake.”
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