On Sunday morning, US Secretary of the Treasury, Janet Yellen, announced they would not bail out Silicon Valley Bank. However, a plan to bail out several banks was published just some hours after the announcement. While this is not a classic government bailout, it has some similarities to the 2008 bank runs. According to Yellen, the government and the FED are working on helping depositors. She also stressed that there are banks, equity, and thousands of shareholders being wiped out by the bank run of Silicon Valley Bank.
Despite the speculations, Janet Yellen made sure to state that no taxpayer money will be used to bail out SVB. Her statement was followed by a statement from Joe Biden, the President of the United States. As per Biden’s statement, “those who caused the Silicon Valley Bank bank run will be held accountable.” So, the new plan will only protect the customers and will not bail out the firms involved.
While the government is trying hard to not take the actions it took back in 2008, it rolled out a reformed plan to protect the depositors. By the end of Monday (Mar. 13), depositors will be paid in full by the government. While this will protect the depositors, it will not help the bank recover, meaning this is not a classic government bailout. As per an FDIC report, more than $175 billion in customer deposits will roll out today. The Twitter community believes that the main reason why the government is taking such immediate action is to minimize the global panic of a financial crisis. While that seems inevitable, government officials remain optimistic.
FED Lends Out Money To Banks So They Survive Interest Rates
The Treasury is also working to prevent a potential “domino effect” caused by the bank run of SVB. To prevent this, the Treasury has set aside $25 billion and has allocated them under FED’s emergency lending fund. While none of the officials believe that the use of these funds will be necessary, having them there provides a safety net for banks.
Experts believe that the government did a great job lending a hand to the SVB depositors. This is because preventing a “domino effect” is very important for the global economy, not just the US one. According to executives of SVB, depositors of the bank would most likely rush to withdraw their funds from other banks if they weren’t refunded in full on Monday. If a financial institution with more than $200 billion in assets goes bankrupt, the whole banking industry suffers damage.