House Speaker Kevin McCarthy joins a raft of other lawmakers hoping a Silicon Valley Bank (SVB) buyer will save the day as the US government says it won’t get through with a bailout.
Industry experts warn the government has only until Monday to prevent a “domino effect” among other regional banks and the broader markets after the country’s 16th largest bank collapsed on Friday after a 60 percent drop in shares.
The collapse sparked a run at the bank as panicked customers withdrew their cash — and the bank recorded $42 billion in withdrawals in a single day on Thursday.
Nonetheless, Treasury Secretary Janet Yellen said on Sunday morning that a bailout like that of 2008 was not on the table.
“I’ve spoken to administration, from Jay Powell and Janet Yellen. They have the tools to deal with the current situation,” McCarthy told Fox News’ Maria Bartiromo on Sunday. “They know how serious this is and they are working to make an announcement before the markets open.”
McCarthy, who represents California’s 20th congressional district, said there was “great potential” for a takeover of the bank, which he believes is an “attractive” option.
House Speaker Kevin McCarthy says the “most attractive” solution for Silicon Valley Bank is for a buyer to buy the crisis-hit bank
New York police are stationed outside the Park Avenue branch of SVB in New York City on Sunday, March 12, as experts warn the bank must 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 closed on Friday
“Silicon Valley Bank has many assets. It’s right where the capital is currently,” he said. “But it’s attractive for someone to want to buy it; it’s just the schedule of where to go next, and that [Biden] The administration has tools to deal with it.’
Elon Musk, CEO of Twitter and Tesla, hinted in a brief tweet on Friday that he was considering buying the bank.
Yellen clarified that the most likely option for SVB to get relief before markets open on Monday is for a buyer to step in as the government will not bail out the bank.
“Let me be clear that during the financial crisis there were investors and owners of systemically important big banks that were bailed out,” she said. ‘
And the reforms that have been put in place mean we won’t do that again,” Yellen said, adding that the Treasury Department is “certainly not” considering a bailout.
“But we’re concerned about depositors and focused on meeting their needs,” she said.
President Joe Biden, California Gov. Gavin Newsom, the Treasury Department and the Federal Deposit Insurance Corporation (FDIC), which now controls the bank’s assets, are holding crisis talks while trying to get other financial institutions to buy up SVB.
Goldman Sachs and Morgan Stanley are among the larger banks being bailed out to step in and bail out SVB.
But industry experts warn the government has only until Monday to prevent a “domino effect” among other regional banks and the broader markets.
The FDIC said insured funds are available to depositors up to a maximum of $250,000 as of Monday morning.
For the uninsured deposits, the FDIC said it will pay depositors an “early dividend” within the next week — but many fear they could lose significant sums or wait a long time to get their money back.
Police were dispatched to SVB’s New York Park Avenue branch as experts warn of a domino effect after there was a run on SVB on Thursday after shares fell 60 percent
Twitter and Tesla CEO Elon Musk said in a tweet that he was ready to bail out the troubled Silicon Valley bank — and even use 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 Silicon Valley Bank’s assets, future dividend payments may be made to uninsured depositors.”
Meanwhile, both the FDIC and the Federal Reserve are working with companies on a possible merger with the failed institution. They are also said to be considering setting up a fund that would allow regulators to secure more deposits.
Each transaction would also likely require regulators to provide specific guarantees and other concessions to the financial institution acquiring the SVB.
Biden has discussed the situation with Newsom as they try to find a possible solution.
In a statement on Saturday, Newsom said: “For the past 48 hours I have been in contact with the highest levels of leadership at the White House and the Treasury Department.
‘Everyone works with us [the] FDIC to stabilize the situation as quickly as possible to protect jobs, people’s livelihoods and the entire innovation ecosystem that has served as a tent pole for our economy.’
Mark Warner, a member of the Democratic Senate Banking Committee, said earlier Sunday that the best case for Silicon Valley Bank (SVB) and its members is if a takeover occurs before the end of the day.
He added that there was consensus in Congress that the bank’s shareholders “should lose their money” but that if a buyer didn’t come along, there were considerations of a depositor bailout to save the day.
Last week’s crisis was the worst meltdown by a US financial institution since 2008, with SVB controlling total assets of $209 billion at the end of 2022.
It comes as Biden continues to tout that he has created the largest financial recovery in recent history from a three-year pandemic. He has repeatedly given speeches and events centered around his policies, which he says have led to a booming economy.
However, some financial experts and business gurus claim that the bank’s collapse portends larger, difficult economic problems.
“I can’t wait for Biden to get back on the floor and talk about how great the economy is and how it’s moving forward and getting stronger by the day. And that’s an indication that what he’s saying isn’t true,” Home Depot co-founder Bernie Marcus said Saturday on Cavuto Live.
When Musk said he was considering rescuing the troubled 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 turmoil. Experts warn it may not be just a ‘one-off’ and advise preparing for the next falling domino.
“The best result will be – can you find a buyer for this SVB bank today before the Asian markets open later in the day. That would be for the best,” Warner told ABC’s This Week host Martha Raddatz on Sunday.
Mark Warner, a member of the Senate Banking Committee, said Sunday that it was best for SVB to find a buyer by the end of the day
“Remember, the bank’s shareholders are going to lose their money, let’s get that straight,” he said. “But depositors can be taken care of. And the best result will be a takeover of SVB.’
Asked if the government was considering a bailout for SVB, Warner balked, saying he wanted to wait until the end of the day to speculate on next steps, as he was “optimistic” there would be a solution by then.
Musk, one of the richest men in the world who bought Twitter for $44 billion last year, responded to a Twitter user’s question on Friday about whether “Twitter should buy SVB and become a digital bank.”
The “Chefwit”, who often answers questions about current events on his social media platform, wrote: “I’m open to the idea.”
California regulators shut down the SVB on Friday after a rush of deposits plunged it into crisis and caused the biggest US bank collapse since the 2008 Great Recession.
SVB members withdrew $42 billion from the bank in a single day on Thursday.
“Honestly, I think some actors accelerated that run,” Warner said.
He urged Americans not to go to their mid-sized banks and take money out to put in bigger money centers because he said, “We don’t want any more consolidation.”
Former Federal Deposit Insurance Corporation (FDIC) Chairwoman Sheila Bair agreed with Warner, saying on NBC’s Meet the Press Sunday morning that she also believes it’s best if SVB finds a buyer.
She said she hopes current FDIC Chairman Martin Gruenberg is trying to find a buyer right now.
“It’s the smoothest way to deal with it – and almost all of our bank failures during the Great Financial Crisis, we had about 400 of them,” she explained.
Bair served as chair of the FDIC during the 2008 crash and served in her post through much of recovery through July 2011.
“The problem is, that was a rush, that was a liquidity shortfall, that was a bank run,” Bair said. “So they didn’t have time to prepare to market the bank. They have to do that now and they’re playing catch-up.’
Musk bought struggling social media app Twitter in protracted negotiations in 2022, showing he’s already prepared to step in to save underwater companies.
He agreed to buy it for $44 billion in April but tried to get out of the deal to get a better price.
California regulators shut down the SVB on Friday after a deposit rush on Thursday drained $42 billion from the bank in a single day and plunged it into a crisis — the biggest collapse of a US bank since the Great Recession of 2008 caused
Eventually, after legal threats, he completed the purchase and completed his acquisition on October 27, 2022.
Had he not gone through with the deal, he would have faced a lawsuit in the Delaware Court of Chancery, according to CNBC.
The ripple effect has already hit similar institutions, such as New York’s Signature Bank, whose share price plummeted 23 percent before halting trading on news of SVB’s demise.
Shares in First Republic, the 16th largest bank in America, also fell 14.8 percent and Pac West fell 37.9 percent.
Dan Roccato, a finance professor at the University of San Diego, warned that while SVB is “a niche bank,” more companies are likely to face tough times.
“I don’t think we’re necessarily going to go back to where we were in 2008, but these things aren’t one-off events,” he told Fox News. “I suppose we’ll see a few more of these things pop up.”
Silicon Valley Bank had 17 branches in California and Massachusetts that will reopen Monday under the control of the FDIC’s Deposit Insurance National Bank of Santa Clara
Wall Street traders were sent into overdrive as markets were hit by the biggest US bank failure since the Great Recession of 2008
SVB shares fell 44% in premarket trading after the turmoil. It fell about 60% in the previous session as investors worried about the strength of its balance sheet
The monumental sinking of Silicon Valley Bank is the second largest banking collapse in US history.
Its demise on Friday, which left customers fearing tens of billions of dollars in lost deposits, is only overshadowed by the 2008 failure of Washington Mutual, which had $307 billion in assets when it filed for bankruptcy.
SVB was more of a niche, specializing in backing tech startups, and its reliance on a small corner of the economy put it in more trouble with a struggling U.S. economy than its larger peers.
But as soon as news of SVB’s collapse broke, similarly intertwined companies had to act quickly.
Investors in other regional banks such as First Republic Bank quickly jumped on board, with company stock prices plunging 50 percent on Friday before recovering to 14.8 percent at the close.
PacWest Bancorp was also among the banks feeling the heat, falling 37.9 percent by the end of Friday.
And the impact extends beyond 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 shares had fallen over 42 percent since that time last year, despite bosses insisting they can pay their bills.
In 2021, when interest rates were near zero and easy money was flooding the economy, venture capital investments in start-ups in the US surged to a record $671 billion, according to KPMG.
That meant booming business for SVB as well, as the bank’s startup customers increased their deposits with the bank, which roughly doubled in 2021.
These deposits helped SVB aggressively expand its loan portfolio. But as Professor Roccato explained, the bank’s inability to cover its costs in the face of rising interest rates resulted in a “death spiral”.
On Wednesday, SVB CEO Greg Becker insisted in a letter to investors that the bank remains “well capitalised, with a high quality, liquid balance sheet and competitive capital ratios”.
University of San Diego finance professor Dan Roccato, pictured, said the bank’s failure to recover its costs in the face of rising interest rates has sent it into a “death spiral”.
New York institution Signature Bank saw its shares plunge 23 percent after halting trading earlier in the day after SBV collapsed
Pacific Western Bank is among the financial institutions rocked by the market slump
First Republic, the 16th largest bank in America, saw its share price fall as much as 50 percent on Friday
While SVB was only one-eighth the size of JPMorgan Chase, the downfall of a $209 billion market player was still a huge blow.
Widespread concern saw the stock prices of Wall Street’s five largest banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and Goldman Sachs — plummet in the days leading up to the SVB’s collapse.
Bank of America, which serves around 67 million customers, saw its share price fall by 11.8 percent in the last week alone.
However, experts are confident that big players can weather the storm.
Meanwhile, start-ups, the bedrock of the now-defunct SVB, are suddenly struggling to make ends meet.
“It’s extremely painful. It could have very adverse consequences: microeconomic damage, social damage,” Karen Petrou, managing partner of Federal Financial Analytics, a Washington consulting firm, told the Washington Post.
“People could suddenly be up the drain.”
Rippling, a human resources firm that handles payroll for other institutions, among other things, said it was unable to pay its clients’ employees immediately due to the market turmoil.
The company’s CEO, Parker Conrad, said on Twitter that employees who depend on its systems were not paid on time, including employees who hold accounts at the United States’ largest bank – JP Morgan Chase.
“Employees who do banking at JPMorgan Chase will see funds hitting their accounts today,” he said Friday.
“Some other banks process payments overnight and staff see payments on 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 rate hikes have been cited as one of the reasons for the collapse of the SVB. Pictured: Federal Reserve Chairman Jerome Powell
Some blame the turmoil on the US Federal Reserve, which has been raising interest rates sharply since last year to fight inflation.
But hopes that higher borrowing costs would slow down the economy enough to lower prices also put more speculative investors at risk.
And while like many banks it was also heavily invested in US Treasuries, rising interest rates meant SVB was unable to cover its books when push came to shove this week.
SVB’s start-up customer base withdrew their accounts faster than expected to cover expenses, resulting in a huge hole in the company’s books.
On Wednesday, SVB said it was forced to sell its bond holdings at a $1.8 billion loss amid cash drain from dwindling deposits. The bank announced plans to ask investors for $2 billion to cover the shortfall.
To protect insured depositors, the FDIC created the Deposit Insurance National Bank of Santa Clara (DINB).
When the bank closed Friday, the FDIC immediately transferred all of Silicon Valley Bank’s insured deposits to DINB.
Starting Monday, Silicon Valley Bank’s headquarters and all branches will reopen under DINB control.
“Banking activities will resume no later than Monday March 13, including online banking and other services. Official Silicon Valley Bank checks will continue to be cashed,” the FDIC said in a statement.
Customers with accounts exceeding the insured amount of $250,000 should contact the FDIC toll-free at 1-866-799-0959.