Biden emphasizes that the US banking system is safe after the collapse of Silicon Valley Bank

(CNN) On Monday, President Joe Biden emphasized that the US banking system remains safe, explaining how his administration is taking action to contain the collapse of Silicon Valley Bank.

“Americans can rest assured that our banking system is safe. Your deposits are safe,” Biden said from the Roosevelt Room. “Let me also assure you that we will not stop at this. We will do whatever it takes on top of all of this.”

Biden used his speech — which was not announced until Sunday evening — to allay fears, directly explaining what he has instructed his administration to do to protect small businesses and workers in the wake of the closure of both Silicon Valley Bank and Signature Bank by the regulator. the last few days. These actions include withholding depositors’ funds, ensuring that taxpayers are not ridiculed for these moves, holding those responsible accountable, and refusing to support Silicon Valley Bank investors.

The president said affected customers can “rest assured” they will be able to access their funds by Monday.

“The management of these banks will be fired. If the bank is taken over by FDIC, the people who run the bank shouldn’t be working there anymore,” Biden said, adding that investors in the banks “will not be protected” because they knowingly take a risk.

The president also said there needs to be a “full accounting” of how this situation happened and steps need to be taken to make sure it “never happens again”.

“In my administration… no one is above the law,” Biden said, before calling on Congress to reinstate banking regulations that were rolled back during the Trump administration.

Treasury officials see positive signs

Treasury officials have paid particular attention to deposit flows in the wake of their actions on Sunday and have seen signs that deposit outflows from small and medium-sized lenders have slowed, a senior Treasury Department official said.

White House and Treasury Department officials were in regular contact with regulators and bank executives throughout the day as they monitored the effect of their dramatic emergency measures over the weekend.

While the initial reports don’t mean the risks have disappeared, they do indicate that a central part of the government’s strategy – sending a clear message to depositors that their deposits were, in fact, safe – has had an effect.

“What we focused on was that uninsured savers felt they were not protected,” the official said. “The scale and breadth of what we’ve done has sent that message.”

While regional bank stocks have been under pressure throughout the day, there’s also some cautious optimism that their efforts are paying off as Wall Street firms – JPMorgan in particular – have opened new lines of credit for some of the riskiest banks.

Smaller lenders, also considered potential risk in case of contagion, have reported stable conditions.

It is clear, however, that government officials are bracing for — and moving quickly to try to frame the political fallout. Biden’s comments before he left for his West Coast trip contained implicit nods to that reality.

The focus on new regulations is tied to that, as is Biden’s explicit and repeated assurance that taxpayers’ money is not at risk.

“This is an important point: the taxpayer will not bear losses,” Biden said. “Let me repeat that: no losses will be borne by the taxpayer.”

“Speed ​​is important at times like this”

The chaos caused by high interest rates led to the old-fashioned bank run last Thursday, with depositors ripping $42 billion from Silicon Valley Bank.

SVB provided financing to nearly half of the venture-backed technology and healthcare companies in the US. At the end of 2022, the bank said it had $151.5 billion in uninsured deposits, of which $137.6 billion was held by U.S. depositors.

Although relatively unknown outside of Silicon Valley, the bank was among the top 20 U.S. commercial banks with $209 billion in total assets, according to the FDIC late last year. It is the largest lender to collapse since Washington Mutual collapsed in 2008.

Despite initial panic on Wall Street over the run on Silicon Valley Bank that sent its stock crashing, analysts said the bank’s collapse was unlikely to trigger the kind of domino effect that gripped the banking industry during the 2008 financial crisis.

Top executives started the weekend alarmed by the failure of the SVB and very alert to additional risks. However, they clearly continued to believe in the broader stability of the US banking system.

While that belief has not changed, multiple officials said, over the course of 36 hours it became increasingly clear among senior banking regulators, the Treasury Department and the White House that the system was facing the threat of widespread contagion, mainly driven by by fear and uncertainty.

Biden, who was at his home in Delaware for the weekend, was regularly briefed by Lael Brainard, director of the National Economic Council. As regulators moved toward the solution they would launch, Treasury Secretary Janet Yellen presented the full plan in consultation with Biden, officials said. The president approved the plans.

The required action would be far-reaching and wide-ranging, consisting of two components designed to address the crisis in the short term and eliminate longer-term spillovers.

The bank’s uninsured deposits would be fully backed by the US government. Officials also had their eyes on several similar banks that were on the verge of collapse, two people familiar with the matter said. A Federal Reserve loan facility would be launched to ease liquidity problems.

“Speed ​​is important at times like this,” said a senior government official of the sharp turn to dramatic emergency action. “These actions should help prevent any additional contamination.”

Within the administration, the central goal at the start of the weekend was to facilitate the purchase of Silicon Valley Bank’s assets and oversee a clean transfer of ownership that protected the tens of billions of dollars in uninsured deposits that were at risk. Private sector solutions, however, were slow to come in ways that federal officials believed would adequately address the problem, officials said.

All the while, a second bank was on the brink of bankruptcy — Signature Bank was due to be seized by state regulators on Sunday afternoon — and several others seemed headed for a similar fate. Uninsured savers panicked — and with social media acting as an accelerator, officials saw an acute risk that savers across the financial system would quickly pull out of regional and community banks.

The decision to deploy dramatic emergency measures was designed to freeze spillover effects. The actions “should lead to a reduction in deposit runs on what are solvent institutions,” a senior Treasury official said.

Officials are optimistic that the efforts made will have the intended effect. The bank seen by many inside and outside the government as the likely next domino to fall — First Republic — secured additional funding from JPMorgan Chase & Co. after the Fed’s announcement. The moves mean First Republic now has $70 billion in untapped liquidity, firepower it can use to respond to potential customer withdrawals.

Still, shares of First Republic Bank fell about 60% in premarket trading Monday, even after the regional lender announced steps to strengthen its balance sheet.

The makeup of Silicon Valley Bank’s portfolio is not widely shared across the banking industry, officials noted, and so it will remain isolated as long as there is broader confidence in the market.

That, more than anything else, led to actions that seemed unlikely a few days earlier, officials said.

“This is an important way to build confidence,” said a separate government official, adding that officials will closely monitor market reaction Monday morning. “Right now, we’re going to focus on making sure we address this.”

CNN’s Matt Egan, Sam Fossum, Ramishah Maruf, Alayna Treene, Phil Mattingly, Ted Barrett and Arlette Saenz contributed to this report.






Leave a Reply

Your email address will not be published. Required fields are marked *