US President Joe Biden has tried to allay fears about a possible financial crisis following the rapid collapse of two major US banks, saying customers would be protected and can trust that the country’s banking system is “safe”.
At a brief press conference at the White House on Monday, Biden said he would seek to hold those responsible accountable and push for better oversight and regulation of larger banks, while also pledging that “no losses would be borne by taxpayers.” “.
US regulators shut down Silicon Valley Bank (SVB) on Friday after it experienced a traditional bank run in which depositors rushed to withdraw their money in one go — the second largest bank failure in the country’s history, behind only the bankruptcy of Washington Mutual in 2008.
But the financial drain was swift, as New York-based Signature Bank also failed.
On Monday morning, Biden told reporters that “all customers who had deposits with these banks can rest assured – rest assured – they will be protected and have access to their funds starting today.” This also applies to small businesses in the US, he said.
“Americans can trust that the banking system is safe. Your deposits will be there when you need them,” Biden said.
The US president’s speech came after Washington’s move over the weekend to guarantee deposits at collapsed tech-focused lender SVB failed to reassure investors about the health of other banks around the world.
With more than $110 billion in assets, Signature Bank is the third-largest bank in U.S. history to fail. Another beleaguered bank, First Republic Bank, announced Sunday that it had bolstered its financial health by accessing funding from the US Federal Reserve and JPMorgan Chase.
In an effort to bolster confidence, the Fed, the US Treasury Department and the Federal Deposit Insurance Corporation (FDIC) said on Sunday that all SVB clients would be protected and have access to their funds.
Biden’s economics team worked with regulators this weekend on the measures, including guaranteeing deposits at both banks, creating a new facility to give banks access to emergency funds and making it easier for banks to borrow from the government in emergencies. fed.
“This move will ensure that the U.S. banking system continues to fulfill its vital role of protecting deposits and providing access to credit to households and businesses in a manner that promotes strong and sustainable economic growth,” the agencies said in a joint statement. declaration.
Despite the Biden administration’s moves, Europe’s STOXX banking index fell 5.8 percent on Monday and was on track for its biggest two-day drop since March 2022, shortly after Russia invaded Ukraine.
Germany’s Commerzbank fell as much as 12.7 percent, while Credit Suisse hit a new record low after falling more than 15 percent.
“The market started off a bit lower as investors tried to assess the potential damage that could result from these latest bank failures and the president’s moves to try and stabilize markets,” Al Jazeera’s Kristen Saloomey reported from New York. .
“The good news is that markets appear to be recovering after opening at a lower rate,” she said.
Meanwhile, UK officials worked through the weekend to find a buyer for SVB’s UK subsidiary, and the country’s treasury and the Bank of England said on Monday they had facilitated the sale of SVB UK to HSBC to the safety of 6.7 billion pounds ($8.1 billion) in deposits.
Jeremy Hunt, head of the UK Treasury, said some of the country’s leading technology companies could have been “wiped out”.
“When you have very young companies, promising companies, they are also vulnerable,” Hunt told reporters, explaining why the authorities acted so quickly. “They have to pay their staff and they were afraid that they would literally lose access to their bank accounts from 8am this morning.”
However, he stressed that there was never any “systemic risk” to the British banking system.
‘Reduce risk’
While Sunday’s moves marked the most extensive US government intervention in the banking system since the 2008 financial crisis, the actions are relatively limited compared to what was done 15 years ago.
The two bankrupt banks themselves have not been bailed out and no taxpayer money has been provided to them.
During Monday’s press conference, Biden said the U.S. government also needs to “reduce the risk of this happening again” and “take full accountability for what happened.”
“I’m going to ask Congress and banking regulators to strengthen the rules on banks to reduce the likelihood of bank failures like this happening again and to protect American jobs and small businesses,” he said.
Biden also said on Monday that the banks’ managers will be fired and investors will lose money. “They knowingly took a risk, and if the risk didn’t pay off, investors lost their money,” he told reporters.
The Democratic president faces a divided Congress, which could make it difficult to pass tougher new rules. However, both Republicans and Democrats have criticized Silicon Valley bank executives.
“The prospect of legislation in this polarized political world is very low,” John Coffee, a professor at Columbia Law School, told Reuters news agency.
“The real problem here is that banks that hold illiquid loans or securities to maturity do not have to write them down, even if they have a market value well below their balance sheet value.
“But when (SVB) sold some of these and revealed their loss, they caused some panic.”
