Biden says Silicon Valley bank managers should be fired over collapse, defends his response
President Joe Biden on Monday said the US banking system is “safe” and assured taxpayers they would not pay for the stunning collapse of a Silicon Valley bank.
Biden tried to keep calm amid fears of a financial meltdown and a flight from banks after stocks tumbled 74 percent in premarket trading amid the second-largest banking meltdown in US history.
He defended his administration’s response in his less than four-minute remarks, said Silicon Valley Bank executives should be fired and pointed the finger at Donald Trump for rolling back the rules.
“Americans can rest assured that the banking system is safe,” he said from Roosevelt Room before leaving for California. “Your deposits will be there when you need them.”
Biden’s remarks were intended to calm the nation after the collapse of two banks just days before U.S. markets opened at 9:30 a.m.
He said depositors would be protected but investors would not, arguing: “That’s how capitalism works.”
Bank shares fell as much as 71 percent on Monday morning despite Biden’s efforts to reassure investors and the plan to ensure that all depositors have access to their funds.
The dollar fell on Monday on expectations that the Federal Reserve will be less aggressive in raising interest rates after authorities stepped in to limit the fallout from the SVB collapse.
The Republican priority is that American taxpayers don’t have to help dig these banks out of their own graves, something the Biden administration has been adamant will not happen.
President Biden tried to help avert a banking crisis with remarks on Monday morning
“There will be no loss to the taxpayers,” Biden said Monday morning.
“Instead, the money will come from fees that banks pay to the deposit insurance fund. Because of the actions our regulators have already taken, every American should be confident that their deposits will be there when and if they need them.”
He also said: “The management of these banks will be fired. When a bank goes under the FDIC, the people who run the bank no longer have to work there.”
“Investors in banks will not be protected,” the president added. “They consciously took a risk, and if the risk didn’t pay off, investors lose their money. That’s how capitalism works.”
SVB’s precipitous fall on Friday was the second-biggest banking collapse in history and raised fears of contagion in the banking sector amid the Federal Reserve’s sharpest rate-hiking cycle since the early 1980s.
Shares of First Republic Bank fell to $47.25 on Monday amid frantic fears of a bank meltdown as Wall Street opens for trading for the first time since SVB and New York’s Signature Bank closed.
“The bottom line is this — Americans can be confident that our banking system is safe,” the president said in his less than four-minute speech.
Treasury Secretary Janet Yellen said Sunday that the federal government will not bail out banks as it did to institutions during the Great Recession of 2008.
The president spoke for about four minutes before leaving without answering questions to catch a flight to California
Republicans want to make sure taxpayers don’t pay a dime, and that has sparked a debate about what role the government should play in helping the financial sector.
“I hope the president calms the waters,” Texas Sen. John Cornyn said Monday morning on Fox News. “There was no reason to panic.”
“The federal deposit will protect people who deposit $250,000 or less,” the Republican lawmaker added. “My understanding is that this bank was making long-term investments and was not prepared for the spike in interest rates caused by the Fed’s rate hike. But hopefully there will be a smooth transition to protecting all depositors without the taxpayers being responsible for it.”
Biden’s remarks sought to bolster confidence in the banking sector after the White House guaranteed over the weekend that it would make SVB and Signature Bank customers “whole” and that “taxpayers will not suffer losses.”
But investors smell blood in the water, and several US banks were hurt in early trading. PacWest Bancorp shares fell 41 percent; Shares of Western Alliance Bancorp fell 33 percent; and Bank of America shares fell 4 percent.
Regulators drew up a plan on Sunday to support depositors with money in SVB to help stem fears of a systematic panic that could lead to a raid on other banks this week.
Depositors at SVB and Signature Bank in New York, which closed on Sunday, will have full access to their money starting Monday.
After a massive stock drop last week, Silicon Valley Bank closed its doors on Friday. New York’s Signature Bank also closed on Sunday as financial experts warn of a domino effect
SVB is a technology institution where many startups keep their funds, and Signature is a popular source of funding for cryptocurrency companies.
A raid on SVB followed last week’s 60 percent plunge in shares of the country’s 16th largest bank, which led to the withdrawal of $42 billion in one day on Thursday and the institution’s total collapse on Friday.
Lawmakers and financial experts said over the weekend that SVB’s only hope was for a last-minute buyer to come in on Sunday and save SVB before markets opened on Monday.
The Treasury Department designated SVB and Signature as systematic risks – giving the Department the power to liquidate the institutions to “fully protect all depositors.”
The deposit insurance fund of the Federal Deposit Insurance Corporation (FDIC) will be used to cover funds available to depositors. Many were uninsured because guaranteed deposits did not exceed $250,000.
The Federal Reserve is also creating a new emergency bank financing program aimed at protecting institutions hit by market volatility and the ripples caused by SVB’s failure.
Republicans oppose a bailout because they don’t want the burden to fall on American taxpayers — even though the administration doesn’t appear to be considering the move.
“We’re not going to do that again,” Yellen said Sunday on CBS News regarding the potential for a 2008-era bailout. “But we are concerned about depositors and are focused on meeting their needs.”
Florida Gov. Ron DeSantis, who is expected to enter the race for the Republican nomination in 2024, suggested that the collapse was due to a greater distraction of institutions towards the goals of diversity, equity and inclusion.
He often argues that such so-called ESG (environmental, social and corporate governance) efforts go too far.
“This bank, they’re so concerned about DEI and politics and all that stuff, I think it’s really distracted them from their core mission,” he said in an interview with Fox News Sunday Morning Futures.
“We have such a quagmire of federal regulations,” he added, portraying the collapse as a failure of federal regulators. “We have a huge federal bureaucracy, but they never seem to be around when we need them to prevent something like this.”
Former South Carolina governor and United Nations ambassador Nikki Haley, who is running for the GOP presidency, was among the first of the fledgling Republicans to call for taxpayers not to be affected by SVB’s failure.
“There is no way taxpayers should be bailing out a Silicon Valley bank,” she said in a statement. “Private investors can buy the bank and its assets. American taxpayers are under no obligation to step in. The era of massive government and corporate bailouts must end.”
The other 2024 GOP presidential candidate, Vivek Ramaswamy, a multi-millionaire biotech founder and investor, also opposed the bailout.
“Silicon Valley Bank made some exceptionally bad management decisions,” he said in an interview with CNN on Sunday. “I don’t think we should be rewarding such bad behavior, such bad mismanagement.”
Republican Representative Nancy Mays said Sunday on CNN that she would not support the bailout: “We cannot continue to bail out private companies because their actions will have no consequences. People who make mistakes or break the law should be held accountable in this country.”