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Silicon Valley Bank collapse catches Biden’s attention

by Chloe Jackson

March 20, 2023

Silicon Valley Bank – The failure of Silicon Valley Bank shook the tech and cryptocurrency industries last week. The announcement ...

Silicon Valley Bank – The failure of Silicon Valley Bank shook the tech and cryptocurrency industries last week. The announcement triggered a reaction from US President Joe Biden on Sunday, who directed US Treasury Secretary Janet Yallen and economic adviser Lael Brainard to work with financial authorities to guarantee that impacted people and companies could access their funds. Biden has pledged to hold those culpable accountable. "I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe," he said in a statement. "The solution also ensures that taxpayer dollars are not put at risk." "I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again."

Emergency action

Treasury officials briefed a bipartisan group of members from both chambers of Congress on Sunday evening. On Sunday, the government chose to move through with drastic emergency moves to extend a federal reinforcement to all Silicon Valley Bank accounts. According to a senior Treasury source, the step is intended to ensure that all monies are available on Monday. The unveiling of a new Federal Reserve lending solution triggered the immediate action. It was created over the course of a weekend as part of a behind-the-scenes effort in the US government to address concerns about how small firms and people may be denied access to their assets. Furthermore, the move fueled a more widespread concern that the inability to supply depositors with their monies would cause a domino effect throughout the banking industry.

Lockdown

When the FDIC took over the bank on Friday, it informed customers that their protected savings would be paid on Monday. The deposits, however, only cover up to $250,000, and both money and power were at stake. The emphasis was on how people with uninsured deposits might be affected. Many of the uninsured are smaller businesses that would have to consider mass layoffs if they couldn't access their cash to meet payroll. Read also: Bakhmut is Russia’s new target in the war

Early action execution

Notwithstanding the concerns, the Treasury official stated that things proceeded rapidly over the weekend, with a decision to move quickly and use the systemic risk exemption. The classification gives the bank additional discretion to transmit cash to holders with accounts above the FDIC's $250,000 limit. According to the official, possible bidders would have had a tough time going through Silicon Valley Bank's records, agreeing to buy the assets, and being ready to open on Monday. With federal officials watching the clock ahead of the opening of Asian financial markets, they decided to take action.

The government & the bank

Janet Yellen directed the FDIC on Sunday to ensure Silicon Valley Bank clients had access to their assets on Monday. Yellen, Fed Chair Jerome Powell, and FDIC Chairman Martin J. Gruenberg issued a joint statement to restore public trust in the American banking sector. Earlier on Sunday, she stated that the government would not relieve the bank, and other parliamentarians opposed the plan. "Let me be clear that during the financial crisis, there were investors and owners of the systemic large banks that were bailed out, and we're certainly not looking," said Yellen regarding a bailout. "And the reforms that have been put in place means that we're not going to do that again." Yellen indicated that she spent the weekend listening to depositors, the majority of whom are small firms with thousands of employees. "I've been working all weekend with our banking regulators to design appropriate policies to address this situation," she said.

The collapse

Silicon Valley Bank failed within 48 hours due to a bank run and capital crisis, making it the second-largest failure of a financial institution in the United States. High interest rates laid the groundwork for Thursday's bank run, with depositors withdrawing $42 billion from Silicon Valley Bank, causing havoc. Despite its prominence in Silicon Valley, Silicon Valley Bank was ranked among the top 20 US commercial banks. According to the FDIC, its entire assets by the end of 2022 were valued $209 billion. The latest episode is the most serious lender failure since the 2008 collapse of Washington Mutual. While there was early fear on Wall Street, causing shares to fall, analysts believe the collapse will not have the same domino effect as the 2008 catastrophe. Shalanda Young, head of the White House Office of Management and Budget, stated on Sunday that the American financial sector is more robust. "It has a better foundation than before the financial crisis," said Young. "That's largely due to the reforms put in place." Image source: The Economic Times

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Silicon Valley Bank collapse catches Biden’s attention

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Emergency action

Lockdown

Early action execution

The government & the bank

The collapse

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