Yellen Says No to Bailout of Silicon Valley Bank in Face of Growing Pressure

In the face of growing pressure for a federal bailout of Silicon Valley Bank (SVB), Treasury secretary Janet Yellen explained Sunday that no such intervention will occur. She added that the biggest bank failure since the 2008 financial crisis is part of a larger tech-industry downturn.

Confronted with a sudden bank run and capital crisis, Silicon Valley Bank collapsed Friday morning in the largest failure since Washington Mutual in 2008. SVB was unique in that it specialized in banking for tech start-ups. Though little known outside Silicon Valley, it is among the top 20 commercial banks in the U.S.

Some have suggested that if a private capital takeover of SVB cannot be accomplished, a bailout should be considered. Pershing Square founder Bill Ackman has suggested a “highly dilutive” federal bailout.

Yelllen appeared on Face The Nation and was asked by Margaret Brennan to react to the news from London: Yellen’s counterpart in the United Kingdom said that the government there has ruled out a bailout of the U.K. arm of SVB.

“Let me be clear that during the [2008] financial crisis, there were investors and owners of systemic large banks that were bailed out…the reforms that have been put in place means that we’re not going to do that again,” said Yellen. “But we are concerned about depositors and are focused on trying to meet their needs.”

Depositors are covered by the FDIC up to $250,000, but many had much more than that amount in their account and are hoping for federal government relief.

The tech industry has been suffering from a downturn, with widespread layoffs taking place in recent months. The secretary explained that “the problems of the tech sector are at the heart of the problems of this bank.”

There are widespread fears that when the markets open tomorrow there will be a deep selloff of U.S. bank stocks, exacerbating the crisis. However, Yellen projected confidence about the banking system’s security at large.

“Let me say that I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation. I can’t really provide further details at this time. But what I do want to do is emphasize that the American banking system is really safe and well-capitalized, it’s resilient,” Yellen said.

SVB has faced speculation that its collapse is the result of mismanagement, with Brennan pointing out that the CEO of that bank reportedly sold about $3 million worth of shares 24 hours before the bank went under. Yellen declined to comment on this point.

Many have argued a private takeover, not a government bailout, is the solution.

Presidential candidate and former South Carolina governor Nikki Haley explained Sunday that “private investors can purchase the bank and its assets. It is not the responsibility of the American taxpayer to step in.”

In an appearance on Sunday Morning Futures, House Speaker Kevin McCarthy (R., Calif.) agreed that the private purchase of this bank is the best possible outcome.