Washington — Democratic Rep. Ro Khanna of California on Sunday urged the Biden administration to take “decisive action” in response to the rapid collapse of Silicon Valley Bank and ensure depositors will be protected and have access to their accounts Monday morning.
“I think they understand the gravity but they need to take decisive action. Time is ticking,” Khanna said in an interview on “Face the Nation” of President Biden and his administration. “I think the U.S. banking is secure. I don’t think this is a systemic risk. Here’s what’s going to happen. Every person in these tech companies is getting emailed: pull your money out of the regional banks, put them in the Big Four.”
Silicon Valley Bank, previously headquartered in Khanna’s congressional district, was abruptly shut down by California regulators on Friday after depositors rushed to withdraw funds amid concerns about the bank’s balance sheet. The Federal Deposit Insurance Corporation (FDIC) was appointed receiver and created the Deposit Insurance National Bank of Santa Clara, to which all insured deposits of Silicon Valley Bank were transferred.
The 40-year-old bank ranked as the 16th-largest in the U.S. before its failure and is the largest financial institution to collapse since Washington Mutual at the height of the financial crisis in 2008. As of the end of 2022, Silicon Valley Bank had roughly $209 billion in total assets and about $174.5 billion in total deposits, according to the FDIC.
President Biden spoke with California Gov. Gavin Newsom about Silicon Valley Bank and the federal response on Saturday, and Treasury Secretary Janet Yellen told “Face the Nation” that she has been working with bank regulators to “design appropriate policies” to address the situation, though she declined to detail what those actions may entail.
Yellen did rule out a federal bailout for Silicon Valley Bank’s investors, and said the Biden administration is working to meet the needs of its depositors.
But Khanna said there needs to be “more clarity and greater strength” from the Treasury Department, and said there is precedent for the Treasury, in coordination with the Federal Reserve and FDIC, to insure every depositor to prevent a run on regional banks.
“The way to resolve it is to say depositors will have access to the accounts,” he said. “Look, the bargain in our country, from FDR, has always been investors, shareholders lose. I have no sympathy for the executives, no sympathy for people who have stopped there. But the depositors are protected.”
Khanna said many of Silicon Valley Bank’s depositors are climate and health care start-ups, companies in the wine industry and defense firms that help the U.S. remain competitive with China.
“They’re employing Americans across the country, and they didn’t take risks. They just had their money in a bank, and we’re saying those need to be guaranteed,” he said.
Federal regulators are working to find a buyer for Silicon Valley Bank, and Yellen told “Face the Nation” that the FDIC is likely considering a “range of available options” to stabilize the situation, including an acquisition by a foreign bank.
Khanna said the “ideal situation” would be for another bank to buy up Silicon Valley Bank’s assets, which was an option that members of the California congressional delegation pushed during a call with the FDIC on Saturday night.
“To have that happen, you need FDIC and Treasury involved, because these assets are not liquid, and they may pay off 10 years from now,” he said. “I don’t think you’re gonna get a private seller without the Treasury Department and FDIC being actively engaged in helping liquidity with these treasury bonds.”
But Khanna lamented that there is a disconnect between how quickly the situation involving Silicon Valley Bank is evolving and the speed with which the government is acting to contain the fallout.
“Right now things move at the speed of Twitter, and the government doesn’t move at that speed,” he said. “And I think they don’t realize what the problem could be and how fast money is moving, and the challenge this could be. There is no systemic risk, but there is a risk on consolidation.”
Because many of the companies that did business with Silicon Valley Bank are start-ups and venture capital firms, the California Democrat warned of the impact the failure could have on American innovation.
“All of the legislation we passed in Congress, the [Inflation Reduction Act] to tackle climate, the Chips Act to bring semiconductors back, it relies on the innovation pipeline, it relies on the tech pipeline, and that is why this is such an important issue,” he said. “What is hurting it is the rapid rise of interest rates, as well as now this systemic risk and it’s going to hurt the innovation pipeline, and it’s going to hurt ordinary people.”