Janet Yellen confirms help for SVB depositors but dismisses bailout

Janet Yellen said on Sunday that the US government was working closely with banking regulators to help depositors at Silicon Valley Bank, but dismissed the idea of a bailout.

Speaking to CBS on Sunday, the Treasury secretary sought to assure US customers of the failed tech lender that policies were being discussed to stem the fallout from the sudden collapse this week. The Federal Deposit Insurance Corporation (FDIC) took control of the bank on Friday morning and has been working over the weekend to ensure insured depositors have access to their funds on Monday.

“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out . . . and the reforms that have been put in place means we are not going to do that again,” Yellen said on Face the Nation.

“But we are concerned about depositors, and we’re focused on trying to meet their needs.”

Most of SVB’s customers are uninsured, however, prompting some this weekend to rush to sell their deposits to pay salaries and other operating expenses. At the end of last year, almost 96 per cent were not covered by the FDIC insurance policy, which guarantees deposits up to $250,000. The FDIC said it would pay uninsured customers an “advance dividend” within the week which would be a percentage of their deposits.

Yellen’s intervention comes amid calls from investors, entrepreneurs and some lawmakers for the government to step in more forcefully to ensure all depositors are made whole, or risk other banks coming under pressure as customers rush to stash cash in larger institutions.

“We must make sure all deposits exceeding the FDIC $250K limit are honoured. Banking is about confidence,” Eric Swalwell, a Democratic congressman from California wrote on Twitter. “If depositors lose confidence on the safety of their deposits over 250k then we are in trouble.”

Andrew Yang, an entrepreneur and former Democratic presidential candidate, warned that “thousands of companies will fold or lay people off next week because of lack of access to accounts through no fault of their own”, imploring the Treasury or the state of California to intervene.

Billionaire hedge fund investor Bill Ackman issued one of the most urgent calls on Saturday, warning of a run on all but the biggest banks should the government stop short of guaranteeing all of SVB’s deposits or the lender being acquired by JPMorgan, Citigroup or Bank of America.

“The unintended consequences of the [government’s] failure to guarantee SVB deposits are vast and profound and need to be considered and addressed before Monday. Otherwise, watch out below,” he wrote on Twitter.

Other lawmakers voiced their opposition to a bailout, however, suggesting little consensus about the path forward.

Speaking on Meet the Press on Sunday, Democratic senator Bob Menendez said: “I’m not ready to offer them a bailout by any stretch of the imagination.”

Rather, the Treasury secretary on Sunday said she had been “working all weekend” with banking regulators to “design appropriate policies to address this situation”, adding that the FDIC was considering a “wide range of available options”, which included acquisitions.

Asked about the potential for broad-based contagion, Yellen affirmed that the banking system was “really safe and well-capitalised”, as well as “resilient”.

“Americans need to feel confident that the banking system is safe and sound, that it can meet the credit needs of households and businesses, and that depositors don’t have to worry about losing access to their money,” she said.