Democrat Josh Gottheimer of New Jersey requested on Sunday that Treasury Secretary Janet Yellen take immediate action to prevent a run on the nation’s banking system in the wake of the failure of Silicon Valley Bank (SVB).
Established in 1983, SVB has become the financial institution of choice for technology and health startups in the United States, particularly in the Silicon Valley tech corridor of California. In response to the COVID-19 pandemic, the bank reported assets of over $200 billion by the end of the previous year.
Friday, however, regulators shut down the once-respected bank of venture capital investors in response to a run on deposits. Rising interest rates devalued the bank’s collateral, putting it on the verge of failure.
In a letter he sent to Yellen on Sunday, the democratic congressman Gottheimer urged her to “take immediate action using all regulatory tools available.” Gottheimer suggested that the Federal Deposit Insurance Corporation (FDIC) prioritise finding a buyer for SVB in order to “provide a seamless transition for the bank’s depositors and borrowers in the hopes of compensating depositors in full.”
Additionally, Gottheimer requested that the Treasury Department and Federal Reserve encourage banks of all sizes that have relationships with SVB’s depositors to extend temporary lines of credit to the bank’s depositors in order to “assist with essential costs” such as payroll. In order to prevent contagion and reassure depositors that banks are healthy, the congressman requested that the Fed continue to provide liquidity through repurchase agreements.
Gottheimer wrote in his letter, “If Americans cannot trust that their basic deposits are secure, we could experience sudden runs on banks of all sizes across the country.”
“Right now, we are concerned about the depositors at SVB, as well as those at banks across the country, who were suddenly unnerved by SVB’s catastrophic failure, which unfolded in just forty-eight hours and was accelerated in part by social media and herd withdrawals,” he added.
Silicon Valley congressman Ro Khanna says “more clarity” needed from Treasury Department on Silicon Valley Bank response, adding that all depositors need to be protected and be made whole. pic.twitter.com/gTDVRTVPZ4
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In the meantime, Representative Ro Khanna, a California Democrat whose district includes Silicon Valley, is also requesting “more clarity” from the Biden administration in light of the bank’s collapse.
Khanna was asked his thoughts on Yellen’s statement that the U.S. government will not “bail out” SVB during a Sunday interview on CBS’s Face the Nation.
Khanna stated, “I have a great deal of respect for Secretary Yellen, but I believe we need greater clarity and force in Treasury’s statements.”
“First, it must be established that all depositors will be protected and have full account access on Monday morning. From what I’ve heard from constituents, they are receiving notes to withdraw from regional banks, which will all be consolidated into the top four banks. We do not desire this as a nation “he said.
Craig Agranoff, a political analyst, told Newsweek on Sunday, “to prevent a [bank] run, the Federal Reserve and other regulatory authorities will likely take steps to reassure depositors about the safety of their other bank deposits.”