US government does not plan to rescue SVB bank but wants to avoid contagion

The secretary of us treasuryJannet Yellen, stated that the government is working to avoid financial contagion in the face of the collapse of Silicon Valley Bankbut ruled out that they go to his “rescue”.

“We want to make sure that problems that exist in one bank don’t create contagion to others that are strong”Yellen said during an interview with CBS.

government takes control

Before the fall of the technological bank, the Deposit Guarantee Agency (FDIC) took control of the bank to protect the money saved by clients, since there were massive withdrawals from many of them.

Although the effects of the SVB implosion have not affected the big banks, it has affected medium-sized and regional banks, since they withdrew from the Stock Exchange.

For example, the First Republic of California and Signature Bank they lost their value. Both institutions had clients with deposits greater than the maximum amount insured by the FDIC, about $250,000 per client, which could push them to withdraw their funds.

In the case of SVB, nearly 96% of deposits are not covered by the FDIC’s refund guarantee.

“I’m sure they (the FDIC) are considering a wide range of available options including acquisitions,” the Treasury secretary said.

The 2008 crisis and its teaching

Yellen assured that the reforms carried out after the financial crisis of 2008 closed the door to a bailout of the SVB.

“Let me make it clear that during the financial crisis, there were investors and owners of large systemic banks that were bailed out…and the reforms that have been put in place mean we are not going to do that again”Yellen told CBS News’ Sunday Morning show.

He added that “We are concerned about depositors and we are focused on trying to meet their needs”Yellen said.

In September 2008, to prevent a collapse of the financial system, the US authorities injected hundreds of billions of dollars into most of the large market institutions, funds that the government later recovered.

Distressed tech sector

Various personalities from finance and the world of new technologies have been advocating since Friday for the rescue of SVB.

Many say they are concerned about the repercussions that the bank’s bankruptcy would have on the technology sector, as it could put the stability of the financial system at risk.

SVB boasted of owning “almost half” of technology and life sciences companies financed by US investors.

Likewise, several businessmen have warned that this “financial contagion” could reach startups in India, some of which are SVB clients.

AFP Source