Will the Obama/Biden Administration allow a “woke” bank that financed a number of the government’s climate change initiatives to fail, possibly dooming those climate change efforts?

Tough talk from Treasury Secretary Janet Yellen ...

Yellen rules out bailout of Silicon Valley Bank owners, investors

Treasury Secretary Janet Yellen said on Sunday that the U.S. would not consider a bailout of Silicon Valley Bank owners and investors after its historic failure last week, saying in the aftermath of the 2008 banking crisis that “we’re not going to do that again.”

“Well, let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out,” Yellen said in an interview with CBS’s “Face The Nation.” “The reforms that have been put in place means that we’re not going to do that again. But we are concerned about depositors and are focused on trying to meet their needs.”

The collapse of the bank sent shockwaves throughout the tech industry last week, which relied heavily on the bank for financing. Federal regulators took over the bank as depositors rushed to pull cash from the company, raising fears that there could be widespread damage to the banking system. <Source> <Full interview transcript/video>

The reality…

Silicon Valley Bank collapse: Treasury, Fed and FDIC announce steps to ensure deposits will be paid in full

The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation announced Sunday that they will make additional funding available to ensure all Silicon Valley Bank deposits, both insured and uninsured, will be paid in full.

"After receiving a recommendation from the boards of the FDIC and the Federal Reserve, and consulting with the President, Secretary [Janet] Yellen approved actions enabling the FDIC to complete its resolution of Silicon Valley Bank, Santa Clara, California, in a manner that fully protects all depositors," the said in a joint statement. "Depositors will have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."

The Fed also announced it will make additional funding available to "to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors." <Source>

The Narrative…

A senior Treasury official and Federal Reserve officials on calls with reporters Sunday night insisted these moves to pay the deposits of Silicon Valley Bank are not a bailout.

The officials stressed that the funds used to pay depositors of Silicon Valley Bank and Signature Bank will come from the FDIC's Deposit Insurance Fund (DIF). The DIF is funded by fees on banks, and then from earnings on their investments such as Treasury securities, and currently has more than $100 billion in it, according to officials.

"The Deposit Insurance Fund is bearing the risk. This is not funds from the taxpayer," a senior Treasury official said.

The senior Treasury official also stressed that taxpayers are not paying for these moves -- the banks' shareholders are. "The bank's equity and bondholders are being wiped out. They took a risk as owners of the securities, they will take the losses," the senior Treasury official said.

Officials were repeatedly pressed by reporters on if these moves on Silicon Valley Bank and Signature Bank would establish a precedent to cover uninsured funds and leave taxpayers vulnerable in the future if FDIC funds were not sufficient.

"Right now, we are very focused on addressing the current issue and taking care of the current system and stabilizing the banking systems -- or the uninsured, and assuring uninsured depositors that they will be made whole. But I do think we will be looking back with time and reassess and assess whether any changes should be made," the senior Treasury official said. <Source>

What the Federal Reserve says…

Federal Reserve Board announces it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors

To support American businesses and households, the Federal Reserve Board on Sunday announced it will make available additional funding to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy.

The Federal Reserve is prepared to address any liquidity pressures that may arise.

The additional funding will be made available through the creation of a new Bank Term Funding Program (BTFP), offering loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral. These assets will be valued at par. The BTFP will be an additional source of liquidity against high-quality securities, eliminating an institution's need to quickly sell those securities in times of stress.

With approval of the Treasury Secretary, the Department of the Treasury will make available up to $25 billion from the Exchange Stabilization Fund as a backstop for the BTFP. The Federal Reserve does not anticipate that it will be necessary to draw on these backstop funds.

After receiving a recommendation from the boards of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, Treasury Secretary Yellen, after consultation with the President, approved actions to enable the FDIC to complete its resolutions of Silicon Valley Bank and Signature Bank in a manner that fully protects all depositors, both insured and uninsured. These actions will reduce stress across the financial system, support financial stability and minimize any impact on businesses, households, taxpayers, and the broader economy. <Source>

Bottom line…

Make no mistake about it, all of the funds used to bailout, or in FedSpeak, stabilize, the failed bank comes from the taxpayers, be they the bank’s investors and depositors or other taxpayers receiving a lower yield and higher fees to pay their bank’s FDIC contribution. All of the costs being ultimately factored into the prices paid by all consumers.

Notice that the Treasury Department, the FDIC (Federal Deposit Insurance Corporation), and the Federal Reserve are studiously ignoring the issue of having large depositors directly pay for insurance to cover their large deposits or building a similar facility to insure long-term holdings against interest rate fluctuations.

Why did the bank’s chief risk officer not adequately hedge their investment in interest-rate-sensitive long-term securities which has been historically problematic in the banking community? Whoops – SVB did not have a CRO for eight months while the bank’s core lending segment, venture capital, was in turmoil. And the risk personnel appeared to concentrate on “woke” initiatives.

Again, we are screwed.

-- Steve