June 23, 2024

Silicon Valley bank: US government rules out bailing out banks, but wants to avoid ‘contagion’ | world

3 min read
Silicon Valley bank: US government rules out bailing out banks, but wants to avoid ‘contagion’ |  world

Bankruptcy of Silicon Valley Bank, the financing bank for startups in the United States – Image: Reuters

And US Treasury Secretary Janet Yellen said on Sunday (13) that The government wants to avoid financial “contagion” after the bankruptcy of Silicon Valley Bank (SVB), but has ruled out bailing out the institution.

“We want to make sure that problems in one bank do not cause a strong infection in others.”Yellen said during an interview with CBS.

  • Silicon Valley Bank, the startup financing bank, has failed in the United States

The Federal Deposit Insurance Agency (FDIC), an arm of the government, took control of SVB on Friday, as the bank was on the brink of collapse under the influence of mass withdrawals from its customers.

If the big banks have escaped so far, many medium or regional institutions announced their delisting on Friday.

That was the scenario for First Republic Bank of California, which lost nearly 30% in Thursday-Friday sessions, and Signature Bank, which was exposed to cryptocurrency and which has lost a third of its value since Wednesday night.

Both banks have a large percentage of corporate customers whose deposits often exceed the FDIC-guaranteed maximum of about $250,000 per customer, which can pressure them to withdraw their money.

Approximately 96% of SVB deposits are not guaranteed to be repaid by FIDC.

“I’m sure they (the Federal Deposit Insurance Corporation) are looking at a wide range of options available, including acquisitions,” the Treasury secretary said.

Democratic Sen. Mark Warner of Virginia told ABC that announcing a takeover bid for SVB by a financial entity before Asian markets open Monday “would be the best solution.”

Major index futures on the Tokyo and Hong Kong stock exchanges are down 2% at the open on Monday.

– The crisis of 2008 and its lessons – Yellen said that the reforms adopted after the financial crisis of 2008 close the door to the rescue of the SVB.

“During the financial crisis, some investors and big bank owners were bailed out…and the reforms that have been implemented mean we won’t do that again,” he said.

In September 2008, to prevent the collapse of the financial system, the US government injected hundreds of billions of dollars into most major market institutions, and the money was later recovered by the government.

Many analysts, from the economic world and from new technologies, advocate saving the SVB.

Many claim they are also concerned about the stability of the banking system, given the fallout from the tech sector’s bank failure.

SVB boasted that “nearly half” of technology and life sciences companies funded by US investors have accounts with the bank.

“Many of the clients are small businesses that rely on access to their money to pay their bills and employ tens of thousands of people across the country,” Yellen said.

“It is a problem and we are working with the regulators to find a solution,” he added.

On Sunday, UK Chancellor of the Exchequer Jeremy Hunt said the collapse of SVB posed a “grave risk” to the UK’s tech sector.

Several entrepreneurs have also been warning in recent hours of a possible expansionary wave affecting Indian tech startups, some of whom are SVB clients.

The crisis triggered by the SVB situation is also affecting cryptocurrencies.

The USDC digital currency, which declares itself “stable” because it is notionally pegged to the dollar, has been devalued since Friday, after the company that created it, Circle, announced it was holding $3.3 billion in SVB and giving up on parity with the greenback.

Other “stablecoins,” such as Dai or USDD, that are supposed to protect crypto investors from the volatility of the sector, were also affected.

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