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The banking reforms put in place after 2008 means that banking regulators won’t be bailing out banks again like they did in that financial crisis, U.S. Treasury Secretary Janet Yellen in an interview on CBS’s “Face the Nation.”
Banking regulators have been working to address the Silicon Valley Bank (NASDAQ:SIVB) situation and are taking into account the many small businesses that are depositors at the bank, she said. The FDIC took control of the bank on Friday when it was overwhelmed by customers seeking to withdraw deposits. Some 85% of its customer deposits weren’t insured.
“I’ve been working all weekend with our banking regulators to design appropriate policies to address this situation,” she said. “I can’t really provide further details at this time. But what I do want to do is emphasize that the American banking system is really safe and well-capitalized, it’s resilient.”
The failure of the bank could have dramatic repercussions across the tech and biotech sectors as many venture-backed startup companies and venture capital firms bank with Silicon Valley Bank.
After the 2008 financial crisis, new controls were put in place for better capital and liquidity supervision at banks and those were tested in the early days of the pandemic, Yellen said. (Note that every year, the biggest banks are now subject 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 the troubles that exist at one bank don’t create contagion to others that are sound,” Yellen said. And the goal of supervision and regulation is to make sure that contagion can’t can’t occur, she added.
Nigel Green, CEO and founder of deVere Group, financial advisory and asset management firm, commented, “Despite the regrettable loses for shareholders, and the almost inevitable market jitters, Yellen has made the sensible decision at this stage to bring stability and confidence into the critical banking sector. The fallout of not doing so could have had serious, far-reaching consequences for the U.S., and therefore global, economy.”
Earlier, FDIC and the Federal Reserve are reportedly considering forming a fund that would allow regulators to backstop deposits should more banks run into trouble.
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