Washington tries to avoid the 'contagion effect' after the fall of Silicon Valley Bank

This Monday is going to be key.

After the fall of Silicon Valley Bank (SVB) on Friday, the US government and financial regulators are trying against the clock to find a solution that allows depositors to recover their money and avoid a crisis of confidence that could spread to other banks. more solid.

According to Reuters, in the next few hours there could be an official announcement by President Joe Biden's Administration to support the bank's deposits and prevent the effects of bankruptcy from spreading.

The Secretary of the Treasury, Janet Yellen, also wanted to send a message of tranquility this Sunday.

Yellen has been working "all weekend" with regulatory bodies to "design appropriate policies that respond to the situation," as she has assured in an interview broadcast on CBS

.

"We are concerned about depositors and we are focused on trying to solve their needs", stressed the senior official, who also stressed that the Administration wants to ensure that "the problems that exist in a bank do not create contagion in others that are solid ”.

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Silicon Valley Bank stars in the biggest fall of a bank in the US since the financial crisis

The Federal Deposit Insurance Corporation (FDIC), the regulatory body that has taken over the bank, began an auction of the entity on Saturday, according to

.

Bids were expected to be accepted until Sunday afternoon, and the winner might not be known until later in the day.

According to the sources cited by the agency, it is possible that it will not give results.

SVB recorded last Thursday the largest withdrawal of deposits from a bank in recent US history.

In ten hours, 42,000 million dollars (about 39,500 million euros) disappeared from their accounting books, or more than a million dollars per second.

Until now, the biggest run on deposits from a bank had occurred in 2008, when Washington Mutual clients claimed about $16.7 billion in ten days.

On Friday, the FDIC took control of the Californian financial institution.

The FDIC guarantees any bank deposit up to $250,000 (235,000 euros).

But the SVB's clients were, for the most part, companies —almost all from the technology sector, from Roku to the communication giant Discovery—, who had much larger funds in custody in the bank and who depend on that money to face to your routine expenses, including your workers' payroll.

According to the financial entity, 96% of its deposits are not guaranteed.

As of December 31, 2022, the bank had 175,000 million dollars in deposits (164,500 million euros), and assets valued at a total of 209,000 million dollars (196,500 million euros).

Urgency for payroll

The regulatory body had advanced on Friday that throughout this week uninsured depositories would receive a proportional advance of their funds.

The rest would presumably have to wait for the liquidation of the bank's assets, a process that can be lengthy and does not guarantee that creditors will be able to get all their money back.

A good part of the affected companies are

, the niche in which Silicon Valley Bank had specialized.

Since in the United States it is common for companies to pay their employees biweekly, these small companies face the real possibility of not being able to meet their salary obligations this Wednesday, the 15th.

Throughout this weekend, those responsible for several of them have implored the authorities for help through social networks, given the precarious situation in which they could be left.

"The real victims of the fall of SVB are the depositaries: the

that have from ten to one hundred workers, who can no longer pay salaries, will have to leave their people on technical strike or fire them on Monday," he pointed out through his Twitter account Garry Tan, CFO of Y Combinator, an incubator for such companies.

Thousands of startups and small businesses are at risk due to the SVB failure.

We ask for depositors to be made whole, and for regulation to prevent this catastrophe.

650 founders who employ more than 22,000 people, have already signed.

https://t.co/pfuObWnhts… https://t.co/lF3ILN4s3p

— Garry Tan 陈嘉兴 (@garrytan) March 11, 2023

“The SVB collapse may seem like a 1% problem that only impacts the tech elite.

Is not true.

This hurts small businesses created by people who work hard and pay modest mortgages in the middle of the country.

This impacts families who have to feed their children,” entrepreneur Lindsey Michaelides, founder of the Strongsuit

, wrote from Ohio on the same social network .

In her televised interview, Yellen has stressed that the Biden Administration is not considering taking steps to save the bank similar to those that Washington took after the outbreak of the global financial crisis in 2008. “During the financial crisis there were investors and owners of large banks systemic ones that received a bailout… the reforms that have been implemented mean that we are not going to do it again, ”insisted the Treasury secretary.

The senior official stressed her message of tranquility to rule out the possibility of contagion.

"Americans need to have confidence that the banking system is strong, that it can meet the credit needs of families and businesses, and that depositors don't have to worry about losing access to their money," she stressed. .

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