WASHINGTON (AP) — After the sudden collapse of Silicon Valley Bank, California Democratic Rep. Maxine Waters began frantically working the phones to find out what was going on with the failed lender — and what would happen to its panicked depositors.
Waters, a former chairman of the House Financial Services Committee, had her doubts that another bank would emerge as a savior and buy the failing institution.
“Banks don’t just wake up and say, ‘Oh, there’s a problem with another major bank and they’ve collapsed. Let’s take it on,” he said.
So began a frantic weekend of back-and-forth briefings with regulators, lawmakers, administration officials and President Joe Biden himself about how to handle the collapse of the nation’s 16th largest bank and a financial institution for tech entrepreneurs. At the heart of the problem were tens of billions of dollars — including money companies needed to pay wages — in Silicon Valley Bank accounts that weren’t protected by federal deposit insurance of only $250,000.
Something had to be done, federal officials agreed, before Asian stock markets opened Sunday afternoon and other banks faced the possibility of waves of panic withdrawals Monday morning.
“We were in a race against time,” said Bharat Ramamurti, deputy director of the National Economic Council.
Waters was right to be skeptical about closing a sale on the fly. The bank’s size — $210 billion in assets — and complexity made it difficult to get a deal done quickly.
Officials of the Federal Deposit Insurance Corp. told Republican senators on Monday that they had received offers for the bank over the weekend but had not had time to close. said they could re-auction Silicon Valley Bank, according to a person with knowledge of the conversation who spoke on condition of anonymity to discuss a private call.
But another plan was coming together. On Sunday, Waters was on the phone with Federal Reserve Chairman Jerome Powell, who briefed her on how it would work. The Fed was creating a new emergency program that allowed it to lend directly to banks so they could cover withdrawals without having to sell assets to raise cash. The idea was to reassure depositors and prevent bank defaults on other institutions.
By Sunday night, the Treasury Department, the Fed and the FDIC said the federal government would protect all deposits — even those above the FDIC’s $250,000 limit.
“It’s miraculous, really,” Waters said, calling it “an example of what government can do together and what government can do with the right people in charge.”
The praise was not unanimous.
On the phone call Monday with officials from the FDIC and the Treasury Department, Republican senators expressed concern that Silicon Valley’s millionaire depositors were bailed out — and the costs could be passed on to community banks in their home states in the form of higher ratings for the federal government. deposit insurance , according to the person with knowledge of the discussion.
The trouble began last Wednesday when Silicon Valley Bank said it needed to raise $2.25 billion to shore up its finances after suffering big losses on its bond portfolio, which had sunk in value as the Federal Reserve raised interest rates. On Thursday, depositors rushed to withdraw their money. An old-fashioned bank run was underway.
At a hearing of the Ways and Means Committee on Friday morning, Treasury Secretary Janet Yellen said her agency has been “watching very closely” developments related to the bank. “When banks face financial losses, it is and should be a matter of concern,” he told lawmakers.
Biden was briefed on the situation Friday morning, according to a White House official who spoke on condition of anonymity to discuss private conversations. Then he celebrated an unexpectedly strong February jobs report, met with the leader of the European Union and went to Wilmington, Delaware, to celebrate his grandson’s 17th birthday.
His weekend will soon be consumed with phone and video calls focused on preventing a nationwide banking crisis. Regulators were so worried, they didn’t even wait until the close of business on Friday – the usual practice – to shut down the bank. they closed the doors during working hours.
It was the second-largest bank failure in U.S. history, and more difficult than most: A staggering 94% of Silicon Valley Bank’s deposits—including large cash holdings from tech startups—were uninsured by the FDIC.
As administration officials and regulators worked through the weekend, Biden expressed concern for small businesses and their employees who relied on accounts that were now at risk, the White House official said.
There were also fears, the official said, that if depositors at Silicon Valley Bank lost money, others would lose faith in the banking system and rush to withdraw money on Monday, triggering a succession crisis.
Massachusetts Democratic Rep. Jake Auchincloss’ phone had been lighting up even before the weekend. Silicon Valley Bank had eight branches and offices in its hometown, and word of its failure traveled quickly on social media.
“Panic in the Massachusetts industry and nonprofit sectors became acute within hours,” Auchincloss said. “My phone started exploding.”
Silicon Valley Bank wouldn’t be the only bank to fail. By Sunday afternoon, federal officials announced that New York-based Signature Bank, a major lender to New York landlords, had also failed and been seized.
The government’s plan to cover deposits of more than $250,000 ended up applying to Signature customers as well.
In a statement on Sunday, Biden said: “The American people and American businesses can have confidence that their bank deposits will be there when they need them.”
On Monday, Powell announced that the Fed would review its oversight of Silicon Valley Bank to figure out what went wrong. The review will be conducted by Michael Barr, the Fed’s vice chairman who oversees banking supervision, and will be released on May 1.
Now Biden and lawmakers are pushing for legislative changes to tighten financial rules on regional banks, perhaps restoring parts of the Dodd-Frank Act that tightened banking regulation after the 2008-2009 financial crisis but was overturned five years ago.
Waters said it may be time to raise deposit insurance limits. “We can’t just say it’s an emergency and forget about it,” he said.
AP writers Fatima Hussein, Seung Min Kim and Christopher Rugaber in Washington and Ken Sweet in New York contributed to this report.