Feds Could Protect All Silicon Valley Bank Deposits Amid Search For Buyer, Reports Say

Topline

Federal regulators have discussed safeguarding all deposits at Silicon Valley Bank—including money that isn’t covered by federal deposit insurance—if a scramble to sell the collapsed bank doesn’t succeed, the Washington Post and New York Times reported Sunday, after Treasury Secretary Janet Yellen said the government would not bail out the bank’s owners and investors but is looking to protect its account holders.

Key Facts

The White House, Treasury, Federal Reserve and Federal Deposit Insurance Corporation are discussing the plan, the Post reported, citing sources with knowledge of the discussions—though the Times says they haven’t made a final decision.

The idea is reportedly one of several being discussed to rescue the California-based bank, but the preferred course of action would be selling Silicon Valley Bank to another institution, officials have told members of Congress, according to the Post.

The FDIC is usually required to spend as little money as possible resolving bank failures and typically only insures $250,000 per account, but it can use its funds to protect uninsured deposits if the Treasury Secretary and two-thirds of the FDIC and Federal Reserve boards determine there is a “systemic risk” to the financial system.

The Federal Reserve could also create a “general banking facility” to aid other financial institutions with ties to Silicon Valley Bank so they wouldn’t have to suffer steep losses from the fallout, a source told CNBC.

The Treasury also told members of Congress the FDIC could “operate” the bank, CNN reported Sunday.

What To Watch For

Federal officials are still looking for a buyer for Silicon Valley Bank, which Sen. Mark Warner (D-Va.) from the Senate Finance Committee called “the best outcome.” Bloomberg reported bids were due Sunday afternoon.

Big Number

$151.6 billion. That’s the total amount of uninsured U.S. deposits held by Silicon Valley Bank, making up the vast majority of the bank’s deposits as of December, according to FDIC filings.

Key Background

Silicon Valley Bank was one of the 20 largest banks in the country before it crashed Friday, following a bank run that came after the Federal Reserve’s interest rate hikes hurt the value of its assets and caused depositors to withdraw funds. Its demise marks the biggest bank failure in the U.S. since the 2008 financial crisis. Many of the bank’s clients were tech startups, and its failure impacted the already hurting industry. Amid fears the crash could create issues at other financial institutions, Yellen said Sunday that a bailout of the bank’s investors isn’t necessary, in part because this situation is far less severe than the Great Recession. “The American banking system is really safe and well-capitalized, it’s resilient,” she said.

Further Reading

Yellen Rules Out Bailout For Silicon Valley Bank (Forbes)

These Companies—Roku, Circle, Roblox And More—Held Major Funds In Silicon Valley Bank When It Crashed (Forbes)

What To Know About Silicon Valley Bank’s Collapse—The Biggest Bank Failure Since 2008 (Forbes)

Biggest Bank Failure Since Great Recession Sparks ‘Overblown’ Fears Of Contagion—But Big Lingering Risks Remain (Forbes)

SVB Shut Down By California Regulator After Bank Stocks Crash Amid Turmoil (Forbes)

Silicon Valley Bank Shares Halted After Plunging 64% In Pre-Market—VC Funds Tell Firms To Withdraw Funds (Forbes)