US President Joe Biden has tried to assuage fears of a potential financial crisis following the rapid collapse of two major US banks by saying customers are protected and can trust the country’s banking system is “safe”.
During a brief White House news briefing on Monday, Biden said he would seek to hold those responsible to account 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 endured a traditional bank run in which depositors withdrew their funds all at once – the second largest bank failure in the country’s history, only after Washington Mutual’s failure in the year 2008
But the financial bloodshed was swift, as New York-based Signature Bank also failed.
On Monday morning, Biden told reporters that “any customers who have had deposits with these banks can rest assured that they are protected and have access to their money starting today.” That includes small businesses in the US, he said.
“Americans can be confident that the banking system is safe. Your deposits are there when you need them,” Biden said.
The US President’s speech came after Washington tried over the weekend to guarantee deposits at collapsed tech-focused lender SVB, which could not 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 to fail in US history. Another struggling bank, First Republic Bank, announced Sunday that it had strengthened its financial health with access to funding from the Federal Reserve and JPMorgan Chase.
To boost confidence, the Fed, the US Treasury Department and the Federal Deposit Insurance Corporation (FDIC) said Sunday all SVB customers are protected and have access to their money.
Biden’s economic team worked with regulators over the weekend on the measures, including guaranteeing deposits at both banks, establishing a new facility to give banks access to emergency funds, and making it easier for banks to borrow from the Fed in emergencies.
“This move will ensure that the U.S. banking system continues to fulfill its important role in protecting deposits and providing access to credit for households and businesses in a way that supports strong and sustained economic growth,” the agencies said in a joint statement Explanation.
Despite measures taken by the Biden administration, Europe’s STOXX banking index fell 5.8 percent on Monday and was on course 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 to decline slightly lower as investors tried to assess the potential damage from these recent bank failures and the President’s moves to stabilize the markets,” said Al Jazeera’s Kristen Saloomey from New York.
“The good news is that markets seem to be recovering after a lower open rate,” she said.
Meanwhile, UK officials worked all weekend to find a buyer for SVB’s UK subsidiary, and the country’s Treasury Department and the Bank of England announced on Monday that they had facilitated the sale of SVB UK to HSBC in order to to ensure the safety of £6.7 billion ($8.1 billion) in deposits.
Jeremy Hunt, chief of the UK Treasury, said some of the country’s leading tech companies could have been “wiped out”.
“When you have very young companies, very promising companies, they are also fragile,” Hunt told reporters, explaining why authorities were so quick to respond. “They have to pay their employees and were concerned they literally couldn’t access their bank account at 8am this morning.”
However, he stressed that there has never been “systemic risk” to the UK banking system.
‘reduce risk’
Although Sunday’s moves represented the largest intervention by the US government in the banking system since the 2008 financial crisis, the measures are relatively limited compared to what was done 15 years ago.
The two failed banks themselves were not bailed out, and no tax money was made available to them.
During Monday’s news briefing, Biden said the US government must also “reduce the risk of this happening again” and “take full account of what happened.”
“I will ask Congress and banking regulators to tighten rules for banks to reduce the likelihood of this type of failure happening again and protect American jobs and small businesses,” he said.
Biden also said Monday that bank executives will be fired and investors will lose money. “They knowingly took a risk, and when the risk didn’t pay off, the investors lost their money,” he told reporters.
The Democratic president faces a divided Congress that could make passing tougher new rules more difficult. However, both Republicans and Democrats have criticized Silicon Valley’s bank executives.
“The prospect of legislation in this polarized political world is very slim,” Columbia Law School professor John Coffee told Reuters.
“The real problem with this is that banks that hold illiquid loans or securities on a hold-to-maturity basis don’t have to write them off even though their market value is well below their book value.
“But if [SVB] sold some of them and disclosed their loss, they panicked.”
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