'Banking system is safe': Biden on SVB collapse

AFP , Monday 13 Mar 2023

President Joe Biden on Monday reassured Americans that their banking system is secure in the wake of the collapse of SVB and said he wants tougher regulations to prevent future crises.

US President Joe Biden speaks about the US banking system on March 13, 2023 in the Roosevelt Room of the White House in Washington, DC. AFP


"Americans can have confidence that the banking system is safe. Your deposits will be there when you need them," Biden said in televised remarks from the White House after Silicon Valley Bank's failure and the federal takeover of a second bank.

While the government is ensuring that SVB depositors get their money back, "no losses will be borne by the taxpayers," Biden said.

"The money will come from the fees that banks pay into the deposit insurance," he added.

The announcement comes after US and European authorities scrambled to prevent any contagion from the abrupt failure of Silicon Valley Bank.

In Britain, banking giant HSBC bought SVB's UK division for just £1 ($1.2) in a rescue deal overseen by the Bank of England and the government. However, French and German authorities said there were no risks to their financial systems.

However, European stock markets fell deeper into the red on Monday and most Asian indices finished lower, with banks taking a hit.

"The contagion risk remains for small banks with highly rate-sensitive clients," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

In this context, US federal authorities stepped in to ensure depositors still had access to their funds at SVB, saying they would make extra funding available to banks to help them meet the needs of depositors, which would include withdrawals.

On his part, Biden challenged Congress to enact more stringent regulations, saying that "tough" safeguards brought in after the 2008 financial collapse had been undone under his Republican predecessor Donald Trump.

"I'm going to 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," Biden said.

He made clear he expects the consequences to fall on the shoulders of those responsible and that the government's rapid response over the weekend was not a bank bailout, as happened in 2008.

"We must get the full accounting of what happened and why, (so) those responsible can be held accountable," he said.

Not only will taxpayers not be liable for covering the deposits, but "the management of these banks will be fired," he said.

Once a bank is taken over by the government, "the people running the bank should not work there anymore."

Biden stressed that investors who bought into SVB were not getting bailed out.

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

Little known to the general public, SVB specialized in financing startups and had become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.

The failed bank -- a key lender to startups across the United States (since the 1980s) -- collapsed after a sudden run on deposits, prompting regulators to seize control Friday.

Since Friday, there have been calls from the tech and finance sectors for a bailout, which Treasury Secretary Janet Yellen ruled out.

Yellen said reforms made after the 2008 financial crisis meant the government was not considering this option for SVB.

And in their joint statement, US federal agencies stressed shareholders and certain unsecured debtholders will not be protected.

Fed officials said "investors in those two banks will lose everything. Senior management of those two banks will bear losses and be removed."

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