Following the abrupt failure of two major American banks, US President Joe Biden has moved to allay concerns about a potential financial crisis by reassuring consumers that the nation’s banking system is “secure” and that they will be protected.
Biden promised that “no losses would be borne by the taxpayers” during a brief news conference he held at the White House on Monday. He also pledged to push for better oversight and regulation of larger banks.
The Silicon Valley Bank (SVB) was shut down by US regulators on Friday after it experienced a traditional bank run, in which depositors rushed to withdraw all of their money at once. This failure was the second-largest bank failure in US history, after Washington Mutual’s in 2008.
But, the economic carnage came quickly since New York-based Signature Bank also failed.
“Any clients who had deposits in these institutions can rest assured – rest assured – they’ll be safeguarded and they’ll have access to their money as of today,” Biden told reporters on Monday morning. Small businesses all around the Nation are included in this, he said.
“The American people can trust that the banking system is secure. When you need them, your deposits will be available, Biden assured.
The US president’s speech came after weekend attempts by Washington to reassure investors about the soundness of other banks around the world by guaranteeing deposits at the defunct tech-focused lender SVB failed.
The third-largest bank to fail in US history, Signature Bank, had assets of more than $110 billion. First Republic Bank, another troubled bank, declared on Sunday that it had improved its financial situation by receiving access to funds from JPMorgan Chase and the US Federal Reserve.
All SVB clients will be safeguarded and have access to their money, the Fed, US Department of the Treasury, and Federal Deposit Insurance Corporation (FDIC) announced on Sunday in an effort to restore confidence.
Over the course of the weekend, Biden’s economic team collaborated with regulators on the measures, which included guaranteeing deposits in both banks, establishing a new facility to provide banks with access to emergency funds, and simplifying the process for banks to borrow money from the Fed in times of need.
“This measure will guarantee that the US banking system continues to execute its critical functions of preserving deposits and providing access to credit to families and businesses in a way that fosters strong and sustainable economic growth,” the agencies said in a joint statement.
Nonetheless, despite the steps the Biden administration had made, the STOXX banking index for Europe dropped 5.8% on Monday and was on track to experience its largest two-day decline since March 2022, just after Russia invaded Ukraine.
Commerzbank of Germany dropped as much as 12.7%, while Credit Suisse dropped more than 15% and set a new record low.
According to Kristen Saloomey of Al Jazeera, “the market started down a bit lower as investors were trying to gauge what possible damage would occur as a result of these fresh bank collapses and the president’s actions to try to stabilise the markets.
The markets appear to be recovering after opening at a lower pace, which is excellent news, she said.
The UK Treasury and the Bank of England announced on Monday that they had facilitated the sale of SVB UK to HSBC in order to ensure the security of 6.7 billion pounds ($8.1bn) in deposits. In the meantime, UK officials searched all weekend for a buyer for the UK subsidiary of SVB.
Some of the top tech firms in the nation might have been “wiped out,” according to Jeremy Hunt, head of the British Treasury.
Hunt told reporters that the reason the authorities responded so fast was because extremely young, promising businesses are also unstable. They were concerned that they might not be able to access their bank account as of 8 a.m. this morning because they needed to pay their employees.
Nonetheless, he emphasized that there has never been a “systemic risk” to the British financial sector.
Even while the moves taken on Sunday were the largest by the US government in the banking sector since the 2008 financial crisis, they were still quite modest in comparison to what was done 15 years ago.
Both the two failing banks themselves and the taxpayers’ money have not been given to them.
The International Monetary Fund (IMF) stated on Monday that it praised “decisive” American steps taken over the weekend to reduce systemic banking system risks and that it was keeping an eye on the situation for potential global repercussions.
The IMF said in a statement to the news agency Reuters that its staff was closely monitoring the situation’s development and evaluating any potential consequences for the stability of the world’s financial system.
The US government “must limit the likelihood of this happening again,” according to Biden, who also emphasized the need to “get the entire accounting of what transpired,” during Monday’s news conference.
“I’m going to push Congress and the financial authorities to enhance the rules for banks to make it less likely that this kind of bank failure will occur again and to protect American jobs and small companies,” he added.
On Monday, Biden added that bank managers will be fired and investors would experience financial losses. He told reporters, “They deliberately took a risk, and when the gamble didn’t pay off investors lost their money.
A split Congress could make it difficult for the Democratic president to pass stricter new regulations. Democrats and Republicans, though, have both criticized Silicon Valley’s bank managers.
John Coffee, a professor at Columbia Law School, told Reuters that there was very little chance of legislation passing in the current politically divisive environment.
“The main issue here is that even though illiquid loans or securities have a market value that is significantly lower than their balance-sheet value, banks holding them on a hold-to-maturity basis are exempt from having to mark them down.
But they caused considerable panic when [SVB] sold some of these and disclosed their loss.
