On Friday afternoon, the deputy Treasury secretary, Wally Adeyemo, met with Jamie Dimon, the chief executive of JPMorgan Chase & Company, to discuss the potential failure of Silicon Valley Bank and its implications on the banking system. There was a concern that the failure of the mega start-up lender could spread to other banks and create a systemic risk to the financial system. Mr. Dimon acknowledged that there was potential for this risk. However, the White House and Treasury officials were initially not concerned about the bank’s collapse and considered facilitating a sale to another financial institution.
The officials changed their minds after signs of bank runs across the country, and direct appeals from small businesses and lawmakers convinced them that the bank’s problems could imperil the entire financial system, not just rich investors in Silicon Valley. Aides met with President Biden in the Oval Office, where they warned that the panic engulfing Silicon Valley Bank could spread to other financial institutions. Mr. Biden told them to keep him updated on developments.
By Friday afternoon, before financial markets had even closed, the Federal Deposit Insurance Corporation had stepped in and shut down the bank. The episode was a test for the president and Treasury Secretary Janet L. Yellen, who risked criticism from both the left and the right by greenlighting what critics called a bailout for banks. It was also the starkest demonstration to date of the impact that the Fed’s aggressive interest rate increases were having on the economy.
Silicon Valley Bank failed because it had put a large share of customer deposits into long-dated Treasury bonds and mortgage bonds that promised modest, steady returns when interest rates were low. As inflation jumped, the bank essentially ran out of money to make good on what it owed to its depositors. By Thursday, concern was growing at the Federal Reserve. Officials, including Jerome H. Powell and Michael S. Barr, worked through Thursday night and into Friday morning to try to find a solution to the bank’s unraveling.
Compounding the worry: The prospects of arranging a quick sale to another bank in order to keep depositors whole dimmed through the weekend. A range of firms nibbled around the idea of purchasing it — including some of the largest and most systemically important. One large regional bank, PNC, tiptoed toward making an acceptable offer. But that deal fell through as the bank scrambled to scrub Silicon Valley Bank’s books and failed to get enough assurances from the government that it would be protected from risks.
On Thursday evening, Peter Orszag hosted a previously scheduled dinner with Mr. Adeyemo, Michael D. Crapo, Republican of Idaho, Mark Warner, Democrat of Virginia, Blair Effron, and other influential people. Both Mr. Crapo and Mr. Warner were sponsors of a 2018 law that rolled back regulation on smaller banks that critics now say left Silicon Valley Bank vulnerable. Blair Effron, whose firm, Centerview Partners, had just been hired by Silicon Valley Bank to advise it on its liquidity crunch, was also there. Mr. Effron and Mr. Adeyemo spoke as it became evident that Silicon Valley Bank was running out of options and that a sale might be necessary.
As Silicon Valley Bank’s depositors raced to withdraw their money on Thursday, sending its stock into free fall, both Ms. Brainard and Mr. Zients began receiving warnings about the bank’s threat to the economy.
This account is based on interviews with current and former officials in the White House, Treasury, and the Fed; financial services executives; members of Congress; and others who were involved or close to the discussions.