House Speaker Kevin McCarthy is joining a slew of other lawmakers hoping that a buyer saves the day for Silicon Valley Bank (SVB) as the U.S. government says it will not come through with a bailout.
Industry experts warn that the government only has until Monday to prevent ‘a domino effect’ among other regional banks and the wider markets after the country’s 16th largest bank collapsed on Friday following a 60 percent drop in shares.
The collapse sparked a run on the bank as panicked customers withdrew their cash – and the bank saw $42 billion in withdrawals in a single day on Thursday.
Despite this, Treasury Secretary Janet Yellen said Sunday morning that a bailout like the one in 2008 is not on the table.
‘I have talked with the administration, from Jay Powell and Janet Yellen. They do have the tools to handle the current situation,’ McCarthy told Fox News’ Maria Bartiromo on Sunday. ‘They do know the seriousness of this, and they’re working to try to come forward with some announcement before the markets open.’
McCarthy, whose represents California’s 20th congressional district, said there is ‘great potential’ that there could be an acquisition of the bank, which he said is an ‘attractive’ option.
House Speaker Kevin McCarthy says that the most ‘attractive’ solution for Silicon Valley Bank is for a buyer to purchase the crisis-hit bank
New York City Police are stationed outside the Park Avenue branch of SVB in New York City on Sunday, March 12 as experts warn the bank needs to be bought before markets open on Monday
Treasury Secretary Janet Yellen announced on Sunday that the government will not bail out Silicon Valley Bank after it shuttered on Friday
‘Silicon Valley Bank has a lot of assets. It’s just where the capital is currently at,’ he said. ‘But it is attractive for someone to want to purchase it; it’s just the timeline on where to move forward, and the [Biden] administration has tools to deal with this.’
Twitter and Tesla CEO Elon Musk suggested in a quick tweet on Friday that he is considering buying the bank.
Yellen clarified that the most likely option for SVB to get relief before the markets open on Monday is for a buyer to come in because the government will not be bailing out the bank.
‘Well let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out,’ she said. ‘
And the reforms that have been put in place means that we’re not going to do that again,’ Yellen said, adding that the Treasury Department is ‘certainly not looking’ at a bailout.
‘But we are concerned about depositors and are focused on trying to meet their needs,’ she said.
President Joe Biden , California Governor Gavin Newsom, the Treasury Department and the Federal Deposit Insurance Corporation (FDIC) — which now controls the bank’s assets — are holding crisis talks as they try to get other financial institutions to buy out SVB.
Goldman Sachs and Morgan Stanley are among the bigger banks being thrown out to come in and save SVB.
But industry experts warn that the government only has until Monday to prevent ‘a domino effect’ among other regional banks and the wider markets.
The FDIC said insured funds up to a maximum of $250,000 will be available to depositors Monday morning.
For the uninsured deposits, the FDIC said it will pay depositors an ‘advanced dividend within the next week – but many fear they could lose substantial sums or face a long wait to get their cash back.
Police were deployed to the New York city Park Avenue branch of SVB as experts warn of aa domino effect after there was a run on SVB Thursday following a 60 percent drop in shares
Twitter and Tesla CEO Elon Musk said in a tweet that he’s open to rescuing the crisis-hit Silicon Valley bank – and even using Twitter as a digital bank
‘Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds,’ the agency said in a statement. ‘As the FDIC sells the assets of Silicon Valley Bank, future dividend payments may be made to uninsured depositors.’
Meanwhile, both the FDIC and Federal Reserve are working with firms on a potential merger with the failed institution. They are also said to be weighing the creation of a fund that would allow regulators to backstop more deposits.
Any deal would also likely require regulators to give special guarantees and make other allowances to the financial institution that takes over SVB.
Biden has discussed the situation with Newsom as they try to find a possible solution.
In a statement on Saturday, Newsom said: ‘Over the last 48 hours I have been in touch with the highest levels of leadership at the White House and Treasury.
‘Everyone is working with [the] FDIC to stabilize the situation as quickly as possible to protect jobs, peoples’ livelihoods and the entire innovation ecosystem that has served as a tent pole for our economy.’
Democratic Senate Banking Committee member Mark Warner said earlier on Sunday that the best case for Silicon Valley Bank (SVB) and its members would be for an acquisition to take place before the end of the day.
He added that there is a consensus in Congress that the shareholders of the bank ‘ought to lose their money,’ but that there are considerations of a bailout for depositors if no buyer comes in to save the day.
The crisis last week was the worst U.S. financial institution failure since 2008, with SVB controlling $209 billion in total assets at the end of 2022.
It comes while Biden continues to tout that he has created the largest financial recovery in recent history coming off of a three-year pandemic. He has repeatedly held speeches and events centered around his policies that he says has led to a booming economy.
Some financial experts and business gurus, however, allege the bank’s collapse is indicative of larger tough economic issues.
‘I can’t wait for Biden to get on the speech again and talk about how great the economy is and how it’s moving forward and getting stronger by the day. And this is an indication that whatever he says is not true,’ Home Depot co-founder Bernie Marcus said Saturday on Cavuto Live.
When Musk said he’s considering rescuing the crisis-hit SVB he also signaled openness to using Twitter as a digital bank.
The sudden collapse of Silicon Valley Bank this week sent financial markets into a frenzy. Experts are warning that it may not be just a ‘one off’ and say to brace for the next domino to fall.
‘The best outcome will be – can they find a buyer for this SVB bank today, before the markets open in Asia later in the day. That would be the best,’ Warner told ABC’s This Week host Martha Raddatz on Sunday.
Senate Banking Committee member Mark Warner said Sunday that the best case for SVB is to find a buyer by the end of the day
‘Remember, the shareholders in the bank are going to lose their money, let’s be clear about that,’ he said. ‘But the depositors can be taken care of. And the best outcome will be an acquisition of SVB.’
When asked if the government is considering a bailout of SVB, Warner bucked and said he wants to wait until the end of the day to speculate on next moves because he is ‘optimistic’ there is a solution before that point.
Musk, one of the world’s richest men who already bought Twitter for $44 billion last year, responded to a Twitter user on Friday asking if ‘Twitter should buy SVB and become a digital bank.’
The ‘chief twit,’ who often replies to questions involving current events on his social media platform, wrote: ‘I’m open to the idea.’
California regulators shuttered SVB on Friday after a run-on deposits pushed it into crisis, causing the largest US bank failure since the 2008 Great Recession.
SVB members pulled out $42 billion from the bank in a single day on Thursday.
‘Frankly, some actors, I think, were accelerating that run,’ Warner said.
He urged Americans not to go to their mid-size banks and take money out to put it into larger money-center banks, because he said ‘we don’t want further consolidation.’
Former Federal Deposit Insurance Corporation (FDIC) chair Sheila Bair agreed with Warner, telling NBC’s Meet the Press program on Sunday morning that she also believes the best case is for SVB to find a buyer.
She said that she hopes current FDIC Chairman Martin Gruenberg is scrambling to find a buyer right now.
‘That’s the smoothest way to handle these – and almost all of our bank failures during the Great Financial Crisis, we had about 400 of them,’ she explained.
Bair was FDIC chair during the crash in 2008, and served in her post through much of the recovery into July 2011.
‘The problem is this was a rush, this was a liquidity failure, this was a bank run,’ Bair said. ‘So they didn’t have time to prepare to market the bank. They’re having to do that now, and they’re playing catch up.’
Musk purchased the struggling social media app Twitter in a protracted negotiation in 2022, showing he is already willing to swoop in to save under-water companies.
He agreed in April to purchase it for $44 billion but tried to back out of the deal to get a better price.
California regulators shuttered SVB on Friday after a run-on deposits saw $42 billion come out of the bank in a single day on Thursday and pushed it into crisis – causing the largest US bank failure since the 2008 Great Recession
Eventually, after legal threats, he ended up going through with the purchase and completed his takeover on October 27, 2022.
Had he not completed the deal, he would’ve faced action in Delaware’s Court of Chancery, according to CNBC.
The ripple effect has already hit similar institutions, such as New York’s Signature Bank, which saw its share price plummet 23 percent before trading was halted when the news of SVB’s demise came in.
The share price of First Republic, the 16th largest bank in America, also crashed by 14.8 percent and Pac West dropped by 37.9 percent.
University of San Diego finance professor Dan Roccato cautioned that while SVB was ‘a niche bank’, more firms are likely to face troubling times ahead.
‘I don’t think we’re going back to where we were in 2008 necessarily, but these things aren’t one-offs’ he told Fox News. ‘My suspicion is we’re going to see a few more of these things creep up.’
Silicon Valley Bank had 17 branches in California and Massachusetts, which will reopen on Monday under the control of the FDIC’s Deposit Insurance National Bank of Santa Clara
Wall Street traders were sent into overdrive as the markets were hit with the largest US bank failure since the Great Recession in 2008
Shares of SVB were down 44% in premarket trading after the turmoil hit. It slumped about 60% in the previous session, with investors concerned about the strength of its balance sheet
Silicon Valley Bank’s monumental downfall is the second-largest bank collapse in U.S. history.
Its demise on Friday, which has left customers fearful of losing deposits totaling tens of billions of dollars, is eclipsed only by the failure of Washington Mutual in 2008, which had assets of $307 billion when it went into receivership.
SVB was more niche, specializing in supporting tech startups, and its dependency on a small corner of the economy put it at increased odds with a struggling US economy than its larger competitors.
But as soon as news hit that SVB collapsed, similarly intertwined companies found themselves needing to act quickly.
Investors in other regional banks such as First Republic Bank quickly jumped ship, with the firms’ share prices tanking upwards of 50 percent Friday before recovering to 14.8 percent at market close.
PacWest Bancorp was also among the banks feeling the heat, dropping 37.9 percent by the end of Friday.
And the impact is stretching past Wall Street. Streaming giant Roku, for example, says 26 percent of its cash reserves – over $480 million – are tied up in SVB.
As of Saturday, the company’s stock had fallen by over 42 percent since this time last year, despite bosses insisting they can pay their bills.
In 2021, when interest rates were near zero and easy money flooded the economy, venture capital investments in startups surged to a record high of $671 billion in the US, according to KPMG.
That also meant booming business for SVB, as the bank’s startup clients increased their deposits with the bank, which roughly doubled in 2021.
Those deposits helped SVB aggressively expand its loan portfolio. But as Professor Roccato explained, the bank’s failure to cover its costs amid rising interest rates led it into a ‘death spiral’.
On Wednesday, SVB CEO Greg Becker insisted in a letter to investors that the bank remained ‘well-capitalized, with a high-quality, liquid balance sheet and peer-leading capital ratios’
University of San Diego finance professor Dan Roccato, pictured, said the bank’s failure to cover its costs amid rising interest rates led it into a ‘death spiral’
New York institution Signature Bank saw its shares plummet 23 percent after trading was halted earlier in the day following the SBV collapse
Pacific Western Bank is among the financial institutions to be rocked by the market collapse
First Republic , the 16th largest bank in America, saw its share price plummet up to 50 percent Friday
While SVB was just one eighteenth the size of JPMorgan Chase, the fall of a market player with $209 billion in assets was still a major body blow.
Widespread concern saw share prices of Wall Street’s five largest banks – JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs – plummeted in the days before SVB collapsed.
Bank of America, which serves approximately 67 million clients, has seen its share price drop 11.8 percent in just the last week.
However, experts are confident big players can weather the storm.
Meanwhile, startups, the bedrock of the now-defunct SVB, have suddenly found themselves struggling to make ends meet.
‘It’s extremely painful. It could have very adverse consequences: microeconomic harm, social welfare harm,’ said Karen Petrou, managing partner of Federal Financial Analytics, a Washington consultancy, to The Washington Post.
‘People all of a sudden could be up the creek.’
Rippling, a human resources management firm that handles, among other assets, payrolls for other institutions, announced it was unable to immediately pay its clients’ employees due to the market turmoil.
The firm’s CEO, Parker Conrad, said on Twitter that employees reliant on its systems were not paid on time, including employees who hold accounts with the largest bank in the United States – JP Morgan Chase.
‘Employees who bank with JPMorgan Chase will see funds hit their accounts today,’ he said Friday.
‘Some other banks will process the payments overnight, and employees will see the payments post Saturday morning. All remaining employees will receive their payments early Monday morning.’
In his apology Conrad added that Rippling would reimburse workers who were charged overdraft fees as a result of the SVB collapse.
The Federal Reserve’s recent interest rate hikes have been pointed to as one of the reasons for SVB’s collapse. Pictured: Federal Reserve Chairman Jerome Powell
Some have laid the blame for the turmoil at the door of the Federal Reserve, which has been drastically increasing interest rates since last year in an attempt to combat inflation.
But the hope that higher borrowing costs would slow the economy enough to bring prices down also put more speculative investors in jeopardy.
And while it had also heavily invested in US treasury bonds, as many banks do, the rising interest rates meant SVB couldn’t cover its books when push came to shove this week.
It saw SVB’s startup client base withdraw their accounts faster than expected to cover expenses, leading to a giant hole in the firm’s books.
On Wednesday, SVB revealed that in the face of a cash burn from dwindling deposits, it was forced to sell off its bond holdings at a $1.8 billion loss. The bank announced plans to seek $2 billion from investors to cover the shortfall.
To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB).
When the bank was shuttered Friday, the FDIC immediately transferred all insured deposits of Silicon Valley Bank to the DINB.
Starting on Monday, the main office and all branches of Silicon Valley Bank will reopen under the control of the DINB.
‘Banking activities will resume no later than Monday, March 13, including on-line banking and other services. Silicon Valley Bank’s official checks will continue to clear,’ the FDIC said in a statement.
Customers with accounts in excess of the insured amount of $250,000 should contact the FDIC toll-free at 1-866-799-0959.