Washington’s Bailout: How the US Government Saved Banks From the SVB Collapse

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Congresswoman Maxine Waters from California was very worried about what was happening to the Silicon Valley Bank. She made a lot of phone calls to try and understand why it failed, and she wasn’t sure if another bank would be able to buy it and help the people who had their money there.

“Banks don’t just get up one morning and decide to take over another bank that has failed,” she said.

During the weekend, the government had a lot on their plate and needed to figure out what to do because Silicon Valley Bank (which is the 16th biggest bank in America), was losing customers’ money like payrolls that were not insured by the federal deposit. In other words, they had tens of billions of dollars at risk! People, including President Joe Biden, had lots of meetings trying to decide how handle this situation.

Government officials knew that something had to be done before the Asian stock markets opened Sunday night and other banks potentially faced a lot of people wanting their money back on Monday.

Bharat Ramamurti, from the National Economic Council, said it was a race against time.

Congresswoman Waters had concerns that this big deal couldn’t happen quickly because of how much money ($210 billion) and all the details involved.

The FDIC said to some Republicans that they had received some offers over the weekend for a bank but didn’t have time to finish it. They suggested that they may try putting that specific bank up for sale again later.

On Sunday, Waters was talking to Jerome Powell from the Federal Reserve who told her about a plan he had. This plan included the Federal Reserve giving money directly to banks so that their customers could take out their money without any issues. This was done to make sure that other banks weren’t affected by people taking out too much and it would also keep customers reassured that there was no need to worry.

By the end of the weekend, the government said it would protect all deposits – even those that were more than $250,000. Someone called Waters amazingly praised this and thought it was great work by the officials in charge. However, not everyone was happy about it.

Yesterday, senators from the Republican party talked on the phone with officials who work for the FDIC and Treasury Department. The senators had an issue with rich people in Silicon Valley – these people are getting saved from not having money but it might cost community banks that live in their state more money. That’s because they might have to pay for something called federal deposit insurance.

Last week, something went wrong with Silicon Valley Bank. They told us they had to raise $2.25 billion in order to stay afloat since they lost a lot of money on bonds when the Federal Reserve started raising interest rates. The next day, people got scared and decided to take their money out quickly – it was like an old-fashioned bank panic!

On Friday morning, Janet Yellen from the Treasury said that her team is carefully watching what happens to banks, due to the fact that when a bank has money troubles, it should definitely be seen as a problem. She explained this when talking to members of Congress in the House Ways and Means committee.

On Friday, President Biden was given information about a certain situation by someone in the White House who didn’t want to be named. Later on that day, he was happy with the report of more jobs during February and talked to a leader from Europe. Lastly, he went home for his grandson’s 17th birthday party.

This weekend, someone needs to make lots of phone and video calls to try and stop a banking disaster across the nation. The people in control were so worried that they didn’t wait until after work like they usually do, but instead closed the bank while it was still open.

Silicon Valley Bank was the second biggest bank to fail in America and it made it really hard for people because most of their deposits were not insured by the FDIC. President Biden was worried about small businesses and their staff members because they wouldn’t be able to access their money now.

Everybody was worried that if the customers of Silicon Valley Bank lost their money, people might lose trust in the whole banking system and try to take out lots of money on Monday, leading to a bigger emergency.

Rep. Jake Auchincloss from Massachusetts was already getting messages about it before the weekend even began because there were 8 branches and offices for Silicon Valley Bank in his state. Plus, people were talking about it a lot on social media.

Auchincloss said that Massachusetts businesses and charities had become very worried within a few hours. He also added that his phone had started ringing constantly.

It turns out that Silicon Valley Bank wasn’t the only one to close down, since federal officials declared on Sunday evening that Signature Bank in New York, which gave money to people who owned large buildings, was seized too.

The government’s plan will make sure that those who had more than $250,000 with Signature will be protected and get their money back.

On Sunday, Joe Biden said that people and businesses can trust that the money kept in banks will always be available when they need it. On Monday, Jerome Powell from the Federal Reserve announced that they’ll investigate what went wrong with Silicon Valley Bank. They’ve asked Michael Barr, a Fed representative who looks after banks, to look into this and report their findings by May 1st.

Joe Biden and other people in charge have suggested changing the money rules of small banks. They want to bring back parts of a law from before the big financial crisis in 2008, which reduced the regulations on banks but was taken away again five years ago.

The Speaker of the U.S. House of Representatives suggested that perhaps we should increase how much money small banks can protect for their customers. She said that just because this is an emergency does not mean we should ignore what needs to be done for them.

Four reporters from different places – Fatima Hussein, Seung Min Kim and Christopher Rugaber from Washington and Ken Sweet from New York – helped write this report.