Silicon Valley Bank Bailout Not On Cards: US Treasury Secretary Janet Yellen

Yellen said "unique controls' were introduced after the 2008 financial crisis to prevent bailouts from the government.

Yellen said she has been working closely with the regulators to come up with a framework.

Source : Getty

US Treasury Secretary Janet Yellen has said the government will not bail out Silicon Valley Bank (SVB), following its shutdown by regulators last Friday. Defending the government's position, Yellen said several reforms were introduced after the 2008 financial crisis with the sole aim to prevent any requirement for a bailout by the government, reported Boitcoin.com. In an interview with CBS News on Sunday, Yellen said the government is not considering any kind of bailout when it comes to the collapsed SVB. She made the comments after the Federal Deposit Insurance Corporation (FDIC) imposed receivership on the bank.

When asked if the US government will intervene as part of emergency measures in the SVB meltdown issues, particularly with respect to bailout matters, Yellen replied, "America’s economy relies on a safe and sound banking system that can provide for the credit needs of our households and businesses. So whenever a bank, especially one like Silicon Valley Bank with billions of dollars in deposits fails, it’s clearly a concern,” as cited by Bitcoin.com.

She further said she has been working closely with the regulators to come up with a framework to address the unprecedented situation appropriately.

"I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation," remarked Yellen.

Yellen defended the government's decision to not engage in any kind of bailout for the bank. She said "unique controls' were introduced after the 2008 financial crisis, which was further tested during the Covid-19 pandemic.

She added the reforms proved their "resilience so Americans can have confidence in the safety and soundness of our banking system," as reported by Bitcoin.com.

Yellen particularly spoke about the government's position on ruling out the government bailout of SVB.

She said, "Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and we’re certainly not looking. And the reforms that have been put in place means that we’re not going to do that again."

However, she agreed that the US government is well aware of the impact that the failure of the bank has cast on many startup firms in the country. She has assured she is working on that as well.

Yellen said, "This is something we’re working to try to resolve.”

Meanwhile, the CEO of Pershing Square Capital Management, Bill Ackman, has also warned of "vast and profound" ramifications due to the US government's decision to not do enough to protect the depositors in the bank.

He said, "No company will take even a tiny chance of losing a dollar of deposits as there is no reward for this risk. Absent a systemwide FDIC deposit guarantee, more bank runs begin Monday am."

Ackman tweeted, "By allowing SVB to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank."

The gov’t has about 48 hours to fix a-soon-to-be-irreversible mistake. By allowing @SVB_Financial to fail without protecting all depositors, the world has woken up to what an uninsured deposit is — an unsecured illiquid claim on a failed bank. Absent @jpmorgan @citi or… https://t.co/SqdkFK7Fld

— Bill Ackman (@BillAckman) March 11, 2023

He said the situation will become even more difficult if the government does not provide a guarantee for all the SVB deposits. Ackman said, 'the giant sucking sound you will hear will be the withdrawal of substantially all uninsured deposits from all but the ‘systemically important banks’ (SIBs).”

He predicted the transfer of funds to SIBs, US Treasury money market funds, and short-term UST. 

Speaking in that context, he said, "There is already pressure to transfer cash to short-term UST and UST money market accounts due to the substantially higher yields available on risk-free UST vs. bank deposits," as reported by Bitcoin.com.

He warned that such withdrawals will result in draining liquidity from the community, regional and other banks. Ackman added that this will also lead to the destruction of important institutions.

Ackman said senior management at the SVB "made a basic mistake" of getting involved in investing short-term deposits into longer-term and fixed-rate assets.

He also hit out at the Federal Deposit Insurance Corporation (FDIC) for "screwing up" their risk monitoring of the entire banking sector.

He said, "The FDIC’s and OCC’s failure to do their jobs should not be allowed to cause the destruction of 1,000s of our nation’s highest potential and highest growth businesses … while also permanently impairing our community and regional banks’ access to low-cost deposits."

Meanwhile, Ackman has clarified that his company Pershing Square has no direct relation to SVB.

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