Federal officials scrambled Sunday to calm the financial sector and tamp down fear that a full-blown economic catastrophe is coming on the heels of Silicon Valley Bank’s sudden collapse.
But some business leaders warned this may be just the beginning of a national reckoning with “woke” institutions that value left-wing politics over sound investing.
Treasury Secretary Janet Yellen all but ruled out a federal bailout of the California-based bank but said the government is working around the clock to find solutions for customers, which include major household-name companies such as Roku and Etsy, ahead of Monday morning’s opening bell on Wall Street.
Regulators effectively shuttered the bank Friday and took control of its deposits, marking the second-biggest bank failure in U.S. history and a seismic event that immediately raised the specter of the 2008 economic crisis that hit its climax with the rapid collapse of leading financial institutions such as Lehman Bros.
The 2008 crisis led directly to a massive and wildly controversial $700 billion federal bailout program. Ms. Yellen said that won’t happen this time.
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out … The reforms that have been put in place means that we’re not going to do that again,” she told the CBS News Sunday program “Face the Nation.” “But we are concerned about depositors and are focused on trying to meet their needs.”
SEE ALSO: Home Depot founder knocks ‘woke’ Silicon Valley Bank going bust: Americans need to ‘wake up’
About $175 billion in SVB assets are now under regulators’ control. SVB deposits up to $250,000 are covered by the Federal Deposit Insurance Corporation, but it’s not clear what may happen to customers who have funds over that limit invested with the bank, including many major Silicon Valley tech firms.
SVB was the nation’s 16th-largest bank. Its demise is fueling fears that other banks could soon fail as they grapple with skyrocketing interest rates that have put significant pressure on their operations.
Ms. Yellen stressed that she believes “problems of the tech sector aren’t at the heart of the problems of this bank,” and she offered seemingly iron-clad assurances that a broader collapse isn’t on the horizon.
“The American banking system is really safe and well capitalized,” she said. “It’s resilient.”
But some critics believe the Biden administration is missing one of the key factors behind SVB’s collapse and the broader contagion that has infected the American economy.
SEE ALSO: White House says Silicon Valley Bank failure won’t lead to repeat of 2008
Bernie Marcus, the co-founder of Home Depot, said over the weekend that the SVB collapse should serve as a wakeup call for Americans entrusting their money to “woke” financial institutions.
Mr. Marcus cited SVB’s focus on climate change and other political issues as part of its investing strategy — the so-called “environmental, social, corporate governance,” or ESG, philosophy. That strategy factors environmental issues such as climate change, social matters such as diversity and inclusion, and other issues into its overall business strategy.
Some companies, Mr. Marcus and other critics argue, value those political issues over the financial well-being of the company, and that the security of customers, clients or investors may not necessarily be the chief priority.
“Maybe the American people will finally wake up and understand that we’re living in very tough times, that, in fact, a recession may have already started,” Mr. Marcus said on Fox News over the weekend.
“I think that the system [and] the administration has pushed many of these banks into [being] more concerned about global warming than they do about shareholder return. And these banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is shareholder returns,” he said.
Containing the damage
The SVB collapse will surely fuel a greater national debate over the role politics and social policies should play in investing. But for the federal government, there are more immediate problems on the horizon.
The SVB slide began when many of its customers, mostly technology companies that needed immediate cash as they struggled to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover those withdrawals, beginning a chain reaction.
The FDIC by law will cover deposits up to $250,000, but it’s not yet clear what will happen to customers’ money beyond that limit.
Ms. Yellen said she expected regulators to consider “a wide range of available options,” including the possible acquisition of Silicon Valley Bank by another institution.
But there were no apparent buyers Sunday.
Congressional leaders urged the administration to quickly lay out a plan.
“They do have the tools to handle the current situation, they do know the seriousness of this and they are working to try to come forward with some announcement before the markets open,” House Speaker Kevin McCarthy told Fox News’ “Sunday Morning Futures” program on Sunday.
The California Republican also expressed hope that SVB would be purchased by another institution.
“I think that would be the best outcome to move forward and cool the markets and let people understand that we can move forward in the right manner,” he said.
But if there are no buyers, that leaves the government with few good options.
Some lawmakers said that as an immediate fix, the administration should guarantee all depositors in order to prevent a broader run on banks, or the collapse of major companies that suddenly can’t pay their bills.
“First, the principle needs to be that all depositors will be protected and have full access to their accounts Monday morning,” Rep. Ro Khanna, California Democrat, told “Face the Nation” on Sunday.
“Here’s what I’m hearing from people in my constituency: they are getting notes to pull out of regional banks, and all of this will be consolidated in the top four banks. We don’t want that as a nation, especially if you’re progressive,” he said. “The other thing is the payroll companies that are involved, some of them have 400,000 folks. They’re not going to be able to meet payroll if they don’t have access to the deposits,” Mr. Khanna added.
But other Democrats suggested Sunday there may be a “moral hazard” to reimbursing above that $250,000 FDIC limit.
“There’s generally been a feeling that, you know, the people responsible, the shareholders of the bank ought to lose their money. Depositors have been a different circumstance, but there are questions around moral hazard,” Sen. Mark Warner, Virginia Democrat and a member of the Senate Banking Committee, told ABC’s “This Week” program.
Meanwhile, the effects of the SVB collapse are already being felt. The online shop Etsy reportedly had to delay payments to some sellers as a result.
“We wanted to let you know that there is a delay with your deposit that was scheduled for today,” the company said in an email to some customers, according to NBC News.
“We know that you count on us to help run your business and we understand how important it is for you to receive your funds when you need them,” the email continued. “Please know that our teams are working hard to resolve this issue and send you your funds as quickly as possible.”
The company told NBC it expects to pay its sellers within the next several business days.
Ramsey Touchberry and Jeff Mordock contributed to this article, which is based in part on wire-service reports.