President Biden on Monday spoke from the White House to try to reassure the world of the resilience of the U.S. banking system.
“Thanks to the quick action of my Administration over the past few days, Americans can have confidence that the system is safe,” Biden said just after 9am Eastern Time. “Your deposits will be there when you need them. Small businesses across the country that deposit accounts in these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills.”
Biden’s speech followed Friday’s Federal Deposit Insurance Corporation (FDIC) takeover of Silicon Valley Bank (SVB) in an effort to protect deposits.
On Sunday, the government announced the closure of a second bank—New York City’s Signature Bank, a key financial institution for the cryptocurrency industry—over what the FDIC said was a “similar systemic risk exception.”
In a joint statement Sunday, the Federal Reserve, the the FDIC and the Treasury Department said SVB depositors would have access to “all of their money” starting Monday and that U.S. taxpayers will not have to foot the bill.
Biden echoed this assurance. “No losses will be borne by the taxpayers,” he said. “Instead the money will come from the fees the banks pay into the deposit insurance fund.”
He went on to say that the management of these banks will be fired. “If the bank is taken over by FDIC, the people running the bank should not work there anymore,” Biden asserted, adding that investors who “knowingly took a risk” would not be protected, either. “That’s how capitalism works,” said Biden.
SVB’s failure is the second largest banking collapse in U.S. history after 2008’s Washington Mutual’s failure, and it’s the largest failure since the 2008 financial crisis that led to the Great Recession.
SVB began its slip into insolvency when its largely tech industry-based customers, many of them start-ups, began withdrawing their deposits. The bank had to sell bonds at a loss to cover the withdrawals.
“Important questions of how these banks got into the circumstances” will be investigated, said Biden on Monday. “We must get the full accounting of what happened and why those responsible can be held accountable. No one is above the law.”
On Sunday, Treasury Secretary Janet Yellen described the Fed’s raising interest rates to combat inflation as the core source of SVB’s problems. Many of its assets, such as bonds or mortgage-backed securities, lost market value as rates climbed.
Biden insisted on Monday that the government must reduce the risk of a bank collapse happening again. He pointed out that during the Obama-Biden Administration regulations were put in place, including the Dodd-Frank Act in 2010, to avert another crisis like that in 2008.
“Unfortunately the last administration rolled back some of these requirements,” Biden stated. “I’m going to ask Congress and the banking regulators to strengthen rules for banks to make it less likely that this bank failure would happen again.”
In Britain, banking giant HSBC bought SVB’s UK division for just one pound, or $1.20, in a rescue deal overseen by the British government and the Bank of England. In France and Germany, however, authorities said there were no risks to their financial systems.
“We will not stop at this, we’ll do whatever is needed,” Biden said.
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