US Treasury Secretary Janet Yellen said on Sunday that the government wants to avoid financial “contagion” after the failure of Silicon Valley Bank (SVB), but bailing out the entity has been ruled out.
“We want to make sure that the problems that exist in one bank do not create contagion for other banks,” Yellen said in an interview with CBS.
The Deposit Insurance Agency (FDIC), an arm of the government, seized control of a Silicon Valley bank on Friday, on the brink of implosion under the effect of massive withdrawals from its customers.
If the big banks have been saved until now, several central or regional entities have left the Stock Market this Friday.
That was the case of First Republic of California, which fell almost 30% in the sessions of Thursday and Friday, and Signature Bank, which lost a third of its value after Wednesday night.
Both institutions have in their client portfolio a large proportion of companies whose deposits exceed the maximum amount insured by the FDIC, about $250,000 per client, that they could withdraw their funds from.
About 96% of the deposits in that bank are not covered by the FDIC’s guarantee refund.
“They (the FDIC) are certainly considering a wide range of options including acquisitions,” the secretary of the treasury said.
The Democratic Senator of Virginia, Mark Warner, on Sunday on the ABC channel stated that the announcement on Sunday of the public offering of SVB to acquire the financial institution before the opening of the Asian markets would be “the best solution”.
Futures contracts on symbolic indexes on the Tokyo and Hong Kong stock exchanges suggest a 2% drop at the open.
The crisis of 2008 and its lessons
Yellen stated that the reforms implemented after the 2008 financial crisis closed the door to bailing out the SVB.
“During the financial crisis, there were investors and owners of big banks that were bailed out … and the reforms that were put in place, we’re not going to do that again,” he said.
In September 2008, to prevent the collapse of the financial system, the US authorities injected 100 billion dollars into the largest institutions of the market, money that the government later recovered.
Various people from finance and the world of new technologies have been advocates since Friday in support of SVB.
Many say they are concerned, in addition to the stability of the banking system, about the repercussions of banking failures in the technology sector.
SVB boasted that it has “about half” of life science and technology companies funded by US investors.
“Many small businesses are depositors who need to be able to access their money to pay their bills and employ tens of thousands of people” in the United States, Yellen said.
“There is a problem and we are working with the regulators to find a solution,” he continued.
On Sunday, UK Chancellor of the Exchequer Jeremy Hunt said the fall in SVB posed a “serious risk” to Britain’s technology sector.
Several businessmen have also warned in recent hours about the wave of possible disruption to Indian technology start-ups, some of which were SVB clients.
The uproar caused by the SVB site has also spread to cryptocurrencies.
The USDC digital currency, he said, is “stable” because it is theoretically pegged to the dollar, since it fell on Friday after its creator Circle announced that it had left $3.3bn in SVB coffers.
Several other “stables”, which are supposed to protect cryptocurrency investors against the legendary volatility of this industry, were also affected, such as Dai or USDD.
