WASHINGTON — President Joe Biden said Monday that the U.S. banking system is “safe and secure” after the failure of Silicon Valley Bank and closure of Signature Bank last week.
“Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” Biden said in remarks at the White House before leaving for a three-day visit to California and Nevada.
But while the system as a whole may prove safe, the danger remains that liquidity issues now confined to a few medium-size banks could crop up at similar banks, putting their depositors and investors at risk and widening the circle of economic fallout.
On Monday, the U.S. Treasury, the Federal Reserve Bank and the Federal Deposit Insurance Corp. said they were crafting “new backstops” to prevent spread of bank failures.
Biden communications officials, speaking to reporters Monday, said that the administration is investigating what went wrong and that “those responsible will be held accountable,” though no details were offered about what that accountability might entail.
Regulators in Washington are assessing whether Santa Clara, California-based Silicon Valley Bank and New York’s Signature Bank had conducted the required planning and stress testing as the Fed raised interest rates starting last year, according to Bloomberg.
Biden officials spent Monday repeating variations on the phrase “This in not 2008,” referring to the banking meltdown that created the nation’s worst financial crisis since the Great Depression.
Despite the turmoil, the stock market as a whole seemed unperturbed. Shares in the Dow and the S&P 500 closed lower Monday, but just a tad: 0.28% and 0.15% respectively. The tech-heavy Nasdaq rose 0.45%.
Medium-size banks took a moderate hit, with regional bank stocks down 7.7% on Monday to their lowest level since June 2020. But midsize institutions with customer bases similar to Silicon Valley Bank’s — rich people — got slammed. Hit hardest: First Republic Bank, based in San Francisco. Its stock dived 62% on Monday, even as First Republic Bank officials said liquidity was not an issue.
Biden blamed the bank collapses on former President Donald Trump’s 2018 decision to scrap some Obama-era banking rules.
“Unfortunately, the last administration rolled back regulations,” Biden said.
Since late last week, the regulators have been working overtime. On Friday the FDIC seized control of Silicon Valley Bank, which served startup and venture capital-funded tech companies and held more than $200 billion in assets as of the end of 2022. Its failure was the largest since 2008.
Then, over the weekend, regulators shuttered Signature Bank after they determined it also presented a systemic risk. The closing marked the second major bank failure in the span of three days.
The Treasury Department announced Sunday that it would provide a federal backstop to all depositors at those two banks to ensure customers, including those who have funds exceeding the $250,000 federal insurance limit, would have access to their funds beginning Monday.
Biden on Monday morning promised that taxpayers would not bear the costs and the money would instead come from fees that banks pay into the federal Deposit Insurance Fund.
Biden also vowed to hold accountable those responsible for the collapse and said the bank’s shareholders would not be protected.
The president said he planned to ask Congress and bank regulators to restore Obama-era rules that were put in place in the wake of the 2008 financial crisis. In 2018, Trump signed a bipartisan bill exempting midsize institutions such as Silicon Valley Bank from those rules.
Democrats were divided about the overhaul of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, with more liberal lawmakers including Sen. Elizabeth Warren, D-Mass., warning the changes would put “American consumers at greater risk.”
Sixteen Senate Democrats and independent Angus King of Maine, who usually votes with Democrats, joined Republicans to vote for the bill. In the House, 33 Democrats joined all but one Republican in approving the measure. Florida Gov. Ron DeSantis, a possible 2024 presidential candidate who was a member of the House at the time, was among the Republicans who voted for the bill.
