The Japan Times - Yellen rules out SVB bailout but US said to weigh protecting deposits

Regulators on Friday took control of SVB -- a key lender to startups across the United States since the 1980s -- after a huge run on deposits left the medium-sized bank unable to stay afloat on its own.

With the bank's future, and its billions in deposits, up in the air, officials of the Treasury Department, Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) were meeting in an urgent effort to craft a solution just hours before financial markets open in Asia, the Washington Post reported.

In the scramble to avert a potential financial panic, the officials were considering the extraordinary step of safeguarding all uninsured deposits at SVB, the Post reported.

That plan would likely kick in only if a quickly organized government auction aimed at finding a healthy buyer for the bank failed by Sunday afternoon, the Post said, citing three people with knowledge of the matter.

Earlier Sunday, Yellen told CBS that the US government wanted "to make sure that the troubles that exist at one bank don't create contagion to others that are sound."

She added that the government was working with the FDIC on a "resolution" of the situation at SVB, where some 96 percent of deposits are not covered by the FDIC's reimbursement guarantee.

Investors punished the banking sector in total on Thursday after SVB disclosed the extent of its troubles the day before, but by Friday, shares in some larger banks posted gains.

Despite attempts by US officials to assure the financial markets, regional lenders remained under pressure.

They included the First Republic Bank, which slumped nearly 30 percent in two sessions on Thursday and Friday, and Signature Bank, a cryptocurrency-exposed lender, which has lost a third of its value since Wednesday evening.

Amid concerns overseas, futures contracts on the flagship indices of the Tokyo and Hong Kong stock exchanges were pointing to an opening decline of just under 2 percent.

- No bailout -

Since Friday, there have been calls from the tech and finance sectors for a bailout.

Yellen said reforms made after the 2008 financial crisis meant the government was not considering this option for SVB.

"During the financial crisis, there were investors and owners of systemic large banks that were bailed out... and the reforms that have been put in place means that we're not going to do that again," she said.

Following the 2008 failure of Lehman Brothers and the ensuing financial meltdown, US regulators required major banks to hold additional capital in case of trouble.

US and European authorities also organize regular "stress tests" designed to uncover vulnerabilities at the largest banks.

SVB's implosion represents not only the largest bank failure since Washington Mutual in 2008, but also the second largest failure ever for a US retail bank.

Little known to the general public, SVB specialized in financing startups and had become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.

The company previously boasted that "nearly half" of technology and life science companies that had US funding banked with them, leading many to worry about the possible ripple effects of its collapse.

"Depositors, many of which will be small businesses, rely on access to their funds to be able to pay the bills that they have, and they employ tens of thousands of people across the country," Yellen said.

The FDIC guarantees deposits -- but only up to $250,000 per client and per bank. Federal banking law, however, would allow the FDIC to protect uninsured deposits if a failure to do so would pose systemic risks, the Post said.

Earlier on Sunday, UK finance minister Jeremy Hunt warned that the country's technology and life sciences sectors were at "serious risk" following the SVB closure, noting that the bank manages the money of some of Britain's most promising businesses.

He added, however, that the Bank of England's governor had made it "very clear" there was no systemic risk to the UK's financial system due to SVB's collapse.

The turmoil has also spread to the cryptocurrency world.

Cryptocurrency USDC -- launched in 2018 as a "stablecoin," meaning it was indexed to a currency backed by a central bank -- fell sharply after the firm that created it, Circle, announced it holds $3.3 billion at SVB and has dropped its peg to the dollar.

K.Yoshida--JT