Advertisement
Advertisement
Silicon Valley Bank (SVB) collapse
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
US President Joe Biden delivering remarks on the United States banking system on Monday morning, before the opening of US markets. Photo: EPA-EFE

Joe Biden says US banking system is safe and vows to strengthen rules after failure of Silicon Valley Bank and Signature Bank

  • US president makes statement on Monday morning before US markets open
  • Remarks follow government actions on Sunday guaranteeing all deposits at Silicon Valley Bank and New York’s Signature Bank

Responding to two bank failures over three days, US President Joe Biden vowed on Monday to push Congress and regulators to “strengthen the rules” on banks and assured depositors that “the banking industry is safe”.

Biden blamed the Donald Trump administration and its easing of regulatory oversight of community banks and credit unions for undermining efforts to guard against the next 2008-style financial crisis.

That meltdown wreaked havoc on not only the US financial system but the entire global economy.

The president made his remarks in a televised address shortly before the US markets opened on Monday morning.

Wall Street’s three major stock indexes were hovering around flat with only marginal gains on Monday morning session after the regulatory actions announced on Sunday night and Biden’s speech. But in early trading, the S&P 500 bank index tumbled over 7 per cent, with the biggest decliner, First Republic Bank, dropping more than 76 per cent.

Silicon Valley Bank headquarters in Santa Clara, California. The bank became the biggest US bank failure in more than a decade after its customer base of tech start-ups grew worried and yanked deposits. Photo: Bloomberg

The US government announced on Sunday night that it would guarantee all deposits at Silicon Valley Bank in California, which regulators shut down on Friday.

Officials also disclosed that a second bank, Signature Bank of New York, had to be shut down, and that the same deposit protections had been extended to its customers.

The Federal Reserve also set up a new lending programme, financed by the Treasury Department, to offer protection for other banks from runs on their deposits.

The statement on Sunday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corporation said that SVB depositors would “have access to all of their money starting Monday, March 13. No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”

“We are also announcing a similar systemic risk exception for Signature Bank,” the statement continued. “All depositors of this institution will be made whole. As with the resolution of Silicon Valley Bank, no losses will be borne by the taxpayer.”

The collapse of SVB and Signature marked the second and third-largest US bank failures in history in terms of assets.

Crypto investors dealt another blow with Signature Bank closure

On Monday, Biden said he would “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”.

He confirmed that the managers of both banks would be fired and that investors in the banks would not be protected.

“They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works,” he said.

Biden stressed the need to get a full accounting of what happened.

“Those responsible can be held accountable,” he said, adding that “no one is above the law”.

Traders below First Republic Bank signage in the New York Stock Exchange as trading was halted in the stock on Friday. Photo: Bloomberg

Biden noted that during the Barack Obama administration – in which he served as vice-president – the US enacted the Dodd-Frank law, which placed rigorous requirements on banks, to ensure that the 2008 crisis would not happen again.

“Unfortunately, the last administration rolled back some of these requirements,” he said.

Still, Biden said that the actions on Sunday meant that “Americans can have confidence that the banking system is safe”.

Following the actions announced on Sunday, Representative Ro Khanna, a California Democrat whose Bay Area district includes much of Silicon Valley, said in a statement that “we’ve known since 2008 that stronger regulations are needed to prevent exactly this type of crisis”.

SVB’s ventures are taken apart in China, UK after US bank’s collapse

“Congress must come together to reverse the deregulation policies that were put in place under Trump to avert future instability.”

En route to San Diego for an Aukus meeting, White House press secretary Karine Jean-Pierre told reporters aboard Air Force One later on Monday that the Treasury was working with bank regulators on next steps.

“This is not a bailout,” she said. “This is not 2008 at all.”

Representative Ro Khanna, a California Democrat whose district includes Silicon Valley, said he supported action ‘’to reverse the deregulation policies that were put in place under Trump”. Photo: AP

National Security Adviser Jake Sullivan, also on the flight, said he expected that Biden would discuss the measures taken regarding SVB with British Prime Minister Rishi Sunak when the two leaders meet in California.

“President Biden feels confident about the steps that he’s taken,” Sullivan said.

The British banking giant HSBC is reportedly set to inject £2 billion (US$2.4 billion) into Silicon Valley Bank’s British subsidiary, after purchasing it for £1 on Monday.

The Federal Reserve Board on Monday said that Michael Barr, the vice-chair for supervision, was leading a review of the supervision and regulation of Silicon Valley Bank. The review will be publicly released by May 1.

“The events surrounding Silicon Valley Bank demand a thorough, transparent and swift review by the Federal Reserve,” said Federal Reserve Chairman Jerome Powell.

Federal Reserve Chairman Jerome Powell said the Fed would review the supervision and regulation of Silicon Valley Bank. Photo: Reuters

Hal Scott, director of the Committee on Capital Markets Regulation, a financial industry policy group, said that an overall change in bank regulation was “not clearly justified” by the SVB collapse.

Scott said that SVB could have been rescued in a different way and increasing the amount of capital all banks would have to hold could interfere with economic recovery from the US bout with inflation.

“We need to tighten the screws on individual banks. We need to supervise them better, but we don’t need to change our regulatory approach,” he said in a television interview with Bloomberg on Monday.

31