US President Joe Biden has sought to dispel fears over a potential financial crisis following the rapid collapse of two major United States banks, saying customers would be protected and can trust that the country’s banking system is “safe”.
During a brief news conference at the White House on Monday, Biden said he would seek to hold those responsible to account and push for better oversight and regulation of larger banks, while he also promised that “no losses would be borne by the taxpayers”.
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US regulators closed the Silicon Valley Bank (SVB) on Friday after it experienced a traditional bank run, where depositors rushed to withdraw their funds all at once – the second largest bank failure in the country’s history behind only the 2008 failure of Washington Mutual.
But the financial bloodletting was swift as New York-based Signature Bank also failed.
On Monday morning, Biden told reporters that “all customers who had deposits in these banks can rest assured – rest assured – they’ll be protected and they’ll have access to their money as of today”. This includes small businesses across the US, he said.
“Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” Biden said.
The US president’s address came after weekend moves by Washington 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 $110bn in assets, Signature Bank is the third-largest bank to fail in US history. Another beleaguered bank, First Republic Bank, announced on Sunday that it had bolstered its financial health by gaining access to funding from the US Federal Reserve and JPMorgan Chase.
In an effort to shore up confidence, the Fed, US Department of the Treasury and Federal Deposit Insurance Corporation (FDIC) said on Sunday that all SVB clients would be protected and have access to their money.
Biden’s economic team worked with regulators over the weekend on the measures, which included guaranteeing deposits in both banks, setting up a new facility to give banks access to emergency funds and making it easier for banks to borrow from the Fed in emergencies.
“This step will ensure that the US banking system continues to perform its vital roles 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.
Still, despite the measures taken by the Biden administration, Europe’s STOXX banking index fell 5.8 percent on Monday and was on track for its biggest two-day fall since March 2022, soon 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 down a bit lower as investors were trying to assess what possible damage might come as a result of these latest bank failures and the president’s moves to try to stabilise the markets,” Al Jazeera’s Kristen Saloomey reported from New York.
“The good news is that the markets seem to be rebounding after opening at a lower rate,” she said.
Meanwhile, United Kingdom officials worked throughout the weekend to find a buyer for the UK subsidiary of SVB, and the country’s Treasury and the Bank of England said on Monday that they had facilitated the sale of SVB UK to HSBC to ensure the security of 6.7 billion pounds ($8.1bn) of deposits.
Jeremy Hunt, Britain’s Treasury chief, said some of the country’s leading tech companies could have been “wiped out”.
“When you have very young companies, very promising companies, they’re also fragile,” Hunt told reporters, explaining why the authorities moved so quickly. “They need to pay their staff and they were worried that as of 8am this morning, they might literally not be able to access their bank account.”
He stressed that there was never a “systemic risk” to Britain’s banking system, however.
Though Sunday’s steps marked the most extensive US government intervention in the banking system since the 2008 financial crisis, the actions are relatively limited compared with what was done 15 years ago.
The two failed banks themselves have not been rescued, and taxpayer money has not been provided to them.
The International Monetary Fund (IMF) said on Monday that it welcomed “decisive” US action to stem systemic banking system risks over the weekend and that it was monitoring the situation for global implications.
“IMF staff are following the evolving situation closely and assessing potential global financial stability implications,” it said in a statement to the Reuters news agency.
During Monday’s news conference, Biden said the US government also “must reduce the risk of this happening again” and “get the full accounting of what happened”.
“I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again and to protect American jobs and small businesses,” he said.
Thanks to actions we've taken over the past few days to protect depositors from Silicon Valley and Signature Banks, Americans can have confidence that our system is safe.
People’s deposits will be there when they need them – at no cost to the taxpayer.
— President Biden (@POTUS) March 13, 2023
Biden also said on Monday that the managers of the banks will be sacked and investors will lose money. “They knowingly took a risk, and when the risk didn’t pay off investors lose their money,” he told reporters.
The Democratic president faces a divided Congress, which could make passing tougher new rules difficult. However, Republicans and Democrats alike have criticised Silicon Valley’s bank managers.
“The prospect of legislation in this polarised political world is very low,” John Coffee, a professor at Columbia Law School, told Reuters.
“The real problem here is that banks that are holding illiquid loans or securities on a hold-to-maturity basis do not have to mark them down even though they have a market value well below their balance-sheet value.
“But when [SVB] sold some of these and revealed their loss, they created some panic.”