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Banking reforms implemented after 2008 mean bank regulators won’t bail out banks again like they did in that financial crisis, US Treasury Secretary Janet Yellen said in an interview on “Face the Nation.”
Banking regulators have been working to tackle Silicon Valley Bank (NASDAQ:SIVB) situation and are taking into account the many small businesses that are depositors at the bank, he said. The FDIC seized control of the bank on Friday when it was overwhelmed by customers seeking to withdraw deposits. About 85% of his clients’ deposits were uninsured.
“I have been working all weekend with our banking regulators to devise appropriate policies to address this situation,” he said. “I can’t really provide any more details at this point. But what I want to do is emphasize that the American banking system is really safe and it’s well capitalized, it’s resilient.”
The bank’s failure could have dramatic repercussions for the tech and biotech sectors, as many venture-backed startups and venture capital firms bank with Silicon Valley Bank.
After the 2008 financial crisis, new controls for better supervision of capital and liquidity at banks were put in place and tested in the early days of the pandemic, Yellen said. (Note that each year the largest banks are now subjected to the Federal Reserve’s stress test to assess their ability to continue lending during a severe economic downturn.)
“We want to make sure that problems that exist in one bank don’t spread to others that are healthy,” Yellen saying. And the goal of supervision and regulation is to make sure contagion cannot happen, he added.
Nigel Green, CEO and founder of deVere Group, a financial advisory and asset management firm, commented: “Despite dismal shareholder losses and the almost inevitable market jitters, Yellen has made the sensible decision at this stage of bring stability and confidence to the critical banking sector. The consequences of failing to do so could have had far-reaching and serious consequences for the US and thus the world economy.”
Earlier, it was reported that the FDIC and the Federal Reserve are considering forming a fund that would allow regulators to support deposits should more banks run into trouble.
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