President Joe Biden said Sunday that at his direction US Treasury Secretary Janet Yellen and his top economic adviser Lael Brainard worked with financial regulators to ensure households and businesses affected by the Silicon Valley Bank and Signature Bank failures could access their deposits, and he promised to hold those responsible accountable.
“I am pleased that they reached a prompt solution that protects American workers and small businesses, and keeps our financial system safe. The solution also ensures that taxpayer dollars are not put at risk,” Biden said in the statement.
“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,” he added.
Treasury officials briefed a bipartisan group of lawmakers from both chambers of Congress Sunday evening, and Biden plans to make remarks Monday on maintaining a “resilient banking system.”
The administration decided to move forward with dramatic emergency actions Sunday to extend a federal backstop to all of Silicon Valley Bank’s deposits in order to ensure access to all of those funds on Monday, according to a senior Treasury official.
The emergency action was paired with the announcement of a new Federal Reserve lending facility and put together over a weekend of furious behind-the-scenes efforts inside the US government to address the acute concern over the fate of the small businesses and individuals at risk of being unable to access their funds.
That also drove a broader, more systemic fear that the inability to provide all depositors with their funds on Monday would create broader contagion that would spread across the banking sector. When the FDIC took control of the bank Friday, it said it would pay customers their insured deposits on Monday, which only covers up to $250,000.
But there was a lot of money – and influence – at stake. The primary focus had been in attempting to address the fate of those holding uninsured deposits – many of which are smaller companies that would likely have to weigh mass layoffs in the event they couldn’t access their funds to make payroll.
CNN previously reported the Federal Deposit Insurance Corporation solicited bids over the weekend from other banks to potentially purchase Silicon Valley Bank.
But the Treasury official noted that “things moved very quickly” over the weekend and that the decision was made to “move early” and trigger the systemic risk exception – a designation that provides more leeway to immediately advance funds to those holding deposits above the current $250,000 threshold covered by FDIC.
The official said it would have been “pretty difficult” for a potential buyer to have gone through SVB’s books, agree to purchase the assets and have been prepared to open on Monday. Instead, with federal regulators closely watching the clock in advance of financial markets opening in Asia, the decision was made to pull the trigger on the government actions.
Yellen on Sunday instructed the Federal Deposit Insurance Corporation to guarantee SVB customers will have access to all of their money starting Monday – an attempt to ensure public confidence in America’s banking system, Yellen, Federal Reserve Chair Jerome Powell and FDIC Chairman Martin J. Gruenberg said in a joint statement.
Yellen said earlier Sunday the government wouldn’t bail out the bank, with a number of lawmakers speaking out against such an idea.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking,” Yellen told CBS News when asked if there will be a bailout. “And the reforms that have been put in place means that we’re not going to do that again.”
Yellen said she’d been hearing from depositors all weekend, many of whom are “small businesses” and employ thousands of people. “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” the Treasury secretary said, declining to provide further details.
SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.
The chaos instigated by high interest rates led to the old-fashioned bank run on Thursday, in which depositors yanked $42 billion from SVB.
SVB provided financing for almost half of US venture-backed technology and health care companies. At the end of 2022, the bank said it had $151.5 billion in uninsured deposits, $137.6 billion of which was held by US depositors.
While relatively unknown outside Silicon Valley, SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC. It’s the largest lender to fail since Washington Mutual collapsed in 2008.
Despite initial panic on Wall Street over the run on SVB, which caused its shares to crater, analysts said the bank’s collapse was unlikely to set off the kind of domino effect that gripped the banking industry during the 2008 financial crisis.
Shalanda Young, the director of the White House Office of Management and Budget, stressed in a Sunday interview with CNN’s Kaitlan Collins that the US banking system at large was “more resilient” now.
“It has a better foundation than before the financial crisis. That’s largely due to the reforms put in place,” Young said on “State of the Union.”
Democratic and Republican leaders were on a Sunday evening call with Treasury officials, as were many rank-and-file lawmakers, a source briefed on the call told CNN. House Speaker Kevin McCarthy and Senate Majority Leader Chuck Schumer raised concerns about systemic failure in the economy.
GOP Sen. Mitt Romney of Utah acknowledged the goal of avoiding panic when the markets open on Monday, but expressed concern about what would happen if the actions taken by federal regulators Sunday evening aren’t enough to stop further bank runs.
Meanwhile, South Carolina Sen. Tim Scott, ranking Republican on the Senate banking committee and a possible GOP presidential candidate, warned Sunday evening against “building a culture of government intervention.”
“Building a culture of government intervention does nothing to stop future institutions from relying on the government to swoop in after taking excessive risks,” Scott said in a statement. “I remain committed to bringing accountability and answers to the American people, both from the banks and our regulators. We deserve to know what exactly happened and why.”
And ahead of the Biden administration’s extraordinary announcement Sunday evening, the collapse had prompted a bailout debate in Washington as lawmakers assessed the fallout.
California lawmakers were unanimous in their agreement that the government should help find a buyer for the bank rather than bail it out, two sources familiar with Treasury’s Sunday’s briefing with them told CNN. Punchbowl News first reported the Treasury briefing with the California delegation.
“Our first and foremost concern must be with the workers affected and their paychecks,” Democratic Rep. Adam Schiff of California told CNN in a statement.
Republican Rep. Nancy Mace of South Carolina told Collins in a separate interview on “State of the Union” that she didn’t support a bailout “at this time” but cautioned, “It’s still very early.”
“We cannot keep bailing out private companies, because there’s no consequences to their actions. People, when they make mistakes or break the law, have to be held accountable in this country,” she said.
Democratic Rep. Ro Khanna, who represents much of Silicon Valley, said the Treasury Department needs to be more aggressive in making sure all depositors in SVB will have access to their money.
“The principle needs to be that all depositors will be protected and have full access to their accounts Monday morning,” Khanna told CBS News. Khanna also made clear that investors and shareholders in SVB, which is headquartered in his district, should not be bailed out.
“I have no sympathy for the executives, no sympathy for the people who have stock there. But the depositors are protected,” he said.
Senate Banking Committee member Kevin Cramer said he hoped the collapse of SVB is “very localized and we can address it in that way.”
“The problem is we live in a very emotional time, where markets are emotional. The reference to social media as being an accelerator, if you will, of some of that emotion, I think, can be problematic,” the North Dakota Republican told NBC News. “But I hope with the weekend came some calm and certainly some strategy as well.”
This story and headline have been updated with additional reporting.
CNN’s David Goldman, Andrew Millman, Aileen Graef, Allison Morrow, Matt Egan, Manu Raju, Aaron Pellish and Jack Forrest contributed to this report.