After the sudden collapse of Silicon Valley Bank, California Democratic Rep. Maxine Waters started furiously working the phones to find out what was going on with the failed lender — and what would happen to its panicked depositors.
Waters, former chair of the House Financial Services Committee, had her doubts that another bank would step up as a savior and buy the defunct institution.
"Banks don't just wake up and say: 'Oh, there's a problem with another significant bank and they've collapsed. Let's just take it over,'" she said.
So began a frenetic weekend of nonstop briefings with regulators, lawmakers, administration officials and President Joe Biden himself about how to handle the demise of the nation's 16th-biggest bank and a go-to financial institution for tech entrepreneurs. At the core of the problem was tens of billions of dollars — including money companies needed to meet payrolls — sitting in Silicon Valley Bank accounts that were not protected by federal deposit insurance that only goes up to $250,000.
Something needed to be done, federal officials agreed, before Asian stock markets opened Sunday evening and other banks faced the potential for waves of panicked withdrawals Monday morning.
"We were racing against the clock," said Bharat Ramamurti, deputy director of the National Economic Council.
Waters was right to be skeptical about a sale being closed on the fly. The bank's size — $210 billion in assets — and complexity made it difficult to quickly wrap up a deal.
Federal Deposit Insurance Corp. officials told Republican senators Monday that they received offers for the bank over the weekend but didn't have time to close; they said they could put Silicon Valley Bank up for auction again, according to a person familiar with the conversation who requested anonymity to discuss a private call.
But another plan was coming together. On Sunday, Waters was on the phone with Federal Reserve Chair Jerome Powell, who briefed her on how it would work. The Fed was creating a new emergency program that allowed it to lend directly to banks so they could cover withdrawals without having to sell off assets to raise cash. The idea was to reassure depositors and prevent bank runs at other institutions.
By Sunday night, the Treasury Department, the Fed and the FDIC said the federal government would protect all deposits — even those that exceeded the FDIC's $250,000 limit.
"It's miraculous, really," Waters said, calling it "an example of what working together and what government can do with the right people in charge."
But the praise was not unanimous.
In the call Monday with officials from the FDIC and the Treasury Department, Republican senators expressed concern that millionaire Silicon Valley depositors were being rescued — and the cost might be passed onto community banks in their home states in the form of higher assessments for federal deposit insurance, according to the person familiar with the discussion.
The trouble started last Wednesday when Silicon Valley Bank said it needed to raise $2.25 billion to shore up its finances after suffering big losses on its bond portfolio, which had plunged in value as the Federal Reserve raised interest rates. On Thursday, depositors rushed to pull their money out. An old-fashioned bank run was underway.
At a House Ways and Means committee hearing on Friday morning, Treasury Secretary Janet Yellen said her agency was "monitoring very carefully" developments related to the bank. "When banks experience financial losses, it is and should be a matter of concern," she told lawmakers.
Biden was briefed about the situation on Friday morning, according to a White House official who spoke on condition of anonymity to discuss private conversations. Then he celebrated an unexpectedly strong February jobs report, met with the leader of the European Union and jetted off to Wilmington, Delaware, to mark his grandson's 17th birthday.
His weekend would soon be consumed with phone and video calls focused on preventing a nationwide banking crisis. Regulators were so concerned, they didn't even wait until the close of business on Friday — the usual practice — to shut the bank down; they closed the doors during working hours.
It was the second-biggest bank failure in U.S. history and trickier than most: An astonishing 94% of Silicon Valley Bank's deposits — including large cash holdings by tech startups — were uninsured by the FDIC.
As administration officials and regulators worked through the weekend, Biden expressed concern about small businesses and their employees who relied on accounts that were now in jeopardy, the White House official said.
There were also fears, the official said, that if Silicon Valley Bank depositors lost money, others would lose faith in the banking system and rush to withdraw money on Monday, causing a cascading crisis.
Massachusetts Democratic Rep. Jake Auchincloss' phone had started lighting up even before the weekend. Silicon Valley Bank had eight branches and offices in his home state, and word of its failure was traveling fast on social media.
"The panic within Massachusetts industry and nonprofit sectors became acute within a matter of hours," Auchincloss said. "My phone started just exploding."
Silicon Valley Bank wouldn't be the only bank to collapse. By Sunday evening, federal officials announced that New York-based Signature Bank, a major lender to New York landlords, had also failed and was being seized.
The government's plan to cover deposits over $250,000 ended up applying to Signature's customers as well.
In a statement Sunday, Biden said, "The American people and American businesses can have confidence that their bank deposits will be there when they need them."
On Monday, Powell announced that the Fed would review its supervision of Silicon Valley Bank to understand what went wrong. The review will be conducted by Michael Barr, the Fed vice chair who heads bank oversight, and be released May 1.
Now Biden and lawmakers are calling for legislative changes to tighten financial rules on regional banks, perhaps restoring parts of the Dodd-Frank law that tightened bank regulation after the 2008-2009 financial crisis but were rolled back five years ago.
Waters said it might be time to raise deposit insurance thresholds. "We can't just say this is an emergency and forget about it," she said.