With U.S. bank Silicon Valley Bank (SVB), favoured by venture capital companies, collapsing with customers looking to get their money out, the U.S. government has made it clear there will be no bailout.
Silicon Valley Bank has US$210 billion in assets and is the 16th largest bank in America. It’s fall on Friday led to a precipitous fall in the share price of other major banks.
Today (March 12), the Treasury Secretary Janet Yellen said: “We’re not going to bail out banks again. Let me be clear that during the financial crisis of 2008, there were investors and owners of systematic large banks that were bailed out…and the reforms that have been put in place mean we are not going to do that again.
“But we are concerned about depositors and we’re focused on trying to meet their needs.”
The FDIC has seen to it that those with a maximum of US$250,000 in Silicon Valley will be able to get their money out on Monday. These depositors must have insured funds in the bank. Uninsured depositors will receive a receivership certificate for the remaining amount of their uninsured funds.
There have been calls for the Fed to put in place a back stop for depositors but owners, shareholders, management must take the hit for errant decision-making.
Silicon Valley Bank, headquartered in Santa Clara, California has 8,500 employees. The bank’s assets have now been seized by the FDIC. At one time the share price was around US$300 and on Friday it dropped to $39.49.
Of concern is that 96 per cent of its $173 billion in deposits were uninsured. A lot of depositors are going to get hurt.
Famed investor Bill Ackman who heads Pershing Square Capital Management believes the Silicon Valley Bank collapse will lead to a run on many banks and that Monday will spell disaster for many.
Ackman wrote: “ From a source I trust, Silicon Valley Bank depositors will get -50 per cent on Monday/Tuesday and the balance based on realised value over the next 3-6 months. If this proves true, I expect there will be bank runs beginning Monday at a large number of non-SIB banks. 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 deposit guarantee, more bank runs begin Monday AM.”