Washington CNN —
The Treasury Department told lawmakers on Sunday that the Federal Deposit Insurance Corporation is prepared to “operate” the failed Silicon Valley Bank to ensure depositors can maintain payroll for their employees and that more operations will emerge in coming days, a source familiar with a briefing with California’s delegation told CNN.
The Washington Post also reported US officials are considering guaranteeing all uninsured deposits at the bank as the government looks for a potential buyer.
All of this comes as Treasury Secretary Janet Yellen said Sunday the government wouldn’t bail out the bank, with a number of lawmakers speaking out against such an idea.
“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,” Yellen told CBS News when asked if there will be a bailout. “And the reforms that have been put in place means that we’re not going to do that again.”
Under Secretary for Domestic Finance Nellie Liang and Assistant Secretary for Legislative Affairs Jonathan Davidson also told the California lawmakers that the FDIC already has action open, with bids to acquire SVB expected to begin coming in Sunday afternoon.
Yellen said she’s been hearing from depositors all weekend, many of whom are “small businesses” and employ thousands of people. “I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” the Treasury secretary said, declining to provide further details.
SVB collapsed Friday morning after a stunning 48 hours in which a bank run and a capital crisis led to the second-largest failure of a financial institution in US history.
The chaos instigated by high interest rates led to the old-fashioned bank run on Thursday, in which depositors yanked $42 billion from SVB.
When the FDIC took control of the bank Friday, it said it would pay customers their insured deposits on Monday, which only covers up to $250,000. But there’s a lot of money – and influence – at stake.
SVB provided financing for almost half of US venture-backed technology and health care companies. At the end of 2022, the bank said it had $151.5 billion in uninsured deposits, $137.6 billion of which was held by US depositors.
Though a lot of money may have come out during the bank run and customers could receive some uninsured funds as the government liquidates SVB, they are still unsure if they can recover all their cash.
While relatively unknown outside Silicon Valley, SVB was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC. It’s the largest lender to fail since Washington Mutual collapsed in 2008.
Congress reacts
Despite initial panic on Wall Street over the run on SVB, which caused its shares to crater, analysts said the bank’s collapse is unlikely to set off the kind of domino effect that gripped the banking industry during the 2008 financial crisis.
Shalanda Young, the director of the White House Office of Management and Budget, stressed in a Sunday interview with CNN’s Kaitlan Collins that the US banking system at large was “more resilient” now.
“It has a better foundation than before the financial crisis. That’s largely due to the reforms put in place,” Young said on “State of the Union.”
But the collapse has prompted a bailout debate in Washington as lawmakers assess the fallout.
California lawmakers were unanimous in their agreement that the government should help find a buyer for the bank rather than bail it out, two sources familiar with Sunday’s briefing told CNN.
“Our first and foremost concern must be with the workers affected and their paychecks,” Democratic Rep. Adam Schiff of California told CNN in a statement.
Republican Rep. Nancy Mace of South Carolina told Collins in a separate interview on “State of the Union” that she doesn’t support a bailout “at this time” but cautioned, “It’s still very early.”
“We cannot keep bailing out private companies, because there’s no consequences to their actions. People, when they make mistakes or break the law, have to be held accountable in this country,” she said.
House Speaker Kevin McCarthy told Fox News on Sunday he has spoken with Yellen and Federal Reserve Chair Jerome Powell about the collapse of SVB and believes “they do have the tools to handle the current situation.”
“They do know the seriousness of this, and they are working to try to come forward with some announcement before the markets open,” the California Republican said.
Another Californian, Democratic Rep. Ro Khanna, who represents much of Silicon Valley, said the Treasury Department needs to be more aggressive in making sure all depositors in SVB will have access to their money.
“The principle needs to be that all depositors will be protected and have full access to their accounts Monday morning,” Khanna told CBS News.
Khanna also made clear that investors and shareholders in SVB, which is headquartered in his district, should not be bailed out.
“I have no sympathy for the executives, no sympathy for the people who have stock there. But the depositors are protected,” he said.
Democratic Rep. Josh Gottheimer of New Jersey, a member of the House Financial Services Committee, sent a letter Sunday to Yellen, Powell, FDIC Chairman Martin Gruenberg and Michael Hsu, the acting head of the Office of the Comptroller of the Currency, calling on them to “act swiftly.”
Gottheimer recommended the FDIC prioritize finding a buyer for SVB “that has the resources to provide a seamless transition for the bank’s depositors and borrowers,” according to a copy of the letter obtained by CNN.
Senate Banking Committee member Kevin Cramer said he hopes the collapse of SVB is “very localized and we can address it in that way.”
“The problem is we live in a very emotional time, where markets are emotional. The reference to social media as being an accelerator, if you will, of some of that emotion, I think, can be problematic,” the North Dakota Republican told NBC News. “But I hope with the weekend came some calm and certainly some strategy as well.”
This story and headline have been updated with additional reporting.