Silicon Valley Bank Collapses: Treasury Secretary Yellen Rules Out Federal Bailout
On March 10th, 2023, Silicon Valley Bank, a fixture in the venture capital space for decades, collapsed in a dramatic 48-hour period. The FDIC was appointed as the receiver by the California Department of Financial Protection and Innovation after the closure of SVB. The bank was shut down by the California Department of Financial Protection and Innovation, who appointed the Federal Deposit Insurance Corporation (FDIC) as receiver, making it the second-largest bank failure in U.S. history. The trouble began on Wednesday after SVB suddenly announced a plan to raise billions in capital to cover big losses, setting off widespread panic among investors and the tech founders they backed.
Treasury Secretary Janet Yellen ruled out a federal bailout for SVB owners and investors after its historic failure last week. Yellen stated that America’s economy is dependent on a protected and secure banking system. It is essential for Americans to trust that the banking system is secure. Yellen said the government was monitoring certain parts of the sector for ripple effects, but she reiterated that she believes the state of the U.S. banking system is strong and that depositors should feel confident in putting their money into banks.
The FDIC will pay uninsured depositors an advance dividend within the next week and said that all insured depositors will have full access to their insured deposits no later than Monday. There are still scenarios where all depositors get their money back, particularly since any losses would be borne first by creditors to the bank.
Founded in 1983, Silicon Valley Bank provided financing for almost half of US venture-backed technology and health care companies. Higher interest rates eroded the value of long-term bonds that SVB and other banks gobbled up during the era of ultra-low, near-zero interest rates. SVB’s bond portfolio, which is worth $21 billion, had an average yield of 1.79%, whereas the current 10-year Treasury yield is around 3.9%.
The collapse of the bank sent shockwaves throughout the tech industry last week, as it relied heavily on the bank for financing. Yellen said she has been working with bank regulators to “design appropriate policies” to address the situation, though she declined to provide further details. She added that the FDIC is probably looking into a variety of potential solutions to rectify the issue, such as having a foreign bank take over the institution.
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