Joe Biden Says US Banking System Safe After Silicon Valley Bank Collapse
President Joe Biden on Monday tried to reassure nervous Americans that they can trust the US banking system to be “safe” and pledged tougher banking regulation after a series of bank failures raised concerns about the country’s financial stability.
The president’s early morning comments came after US banking regulators spent the weekend working on a plan to boost public confidence in the soundness of the financial system and the spillover effects following the closure of the Silicon Valley bank last week to limit.
“Americans can rest assured that our banking system is secure. Your deposits are safe,” Biden said from the Roosevelt Room of the White House.
Taxpayers will not suffer any losses from the move, which will be funded by fees regulators charge banks, he said. Bank leaders would be fired, he added.
Biden allayed fears in his address and went straight to what he has told his administration to do to protect small businesses and workers after regulators shut down both Silicon Valley Bank and Signature Bank in recent days.
California-based Silicon Valley Bank (SVB), the 16th largest bank in the United States, was shut down on Friday by the California Department of Financial Protection and Innovation, which later appointed the Federal Deposit Insurance Corporation (FDIC) as its receiver.
It was the largest bankruptcy by a US bank since the 2008 financial crisis.
It came after SVB struggled to raise money to offset a loss from the sale of assets hit by higher interest rates. News of the problems caused customers to scramble to withdraw funds, leading to a liquidity crisis.
Authorities also said Sunday they had taken over Signature Bank of New York, which was seen after the SVB as the institution most vulnerable to a similar bankrun.
Also Read: HSBC Acquires UK Subsidiary of Silicon Valley Bank for £1
“Every American should be confident that their deposits are there when they need them,” President Biden said. “Let me assure you too. We won’t stop there. We will do what is necessary.”
However, investors in the banks would not be protected, the president said, and management would be fired.
“They knowingly took a risk, and when the risk didn’t pay off, investors lost their money. That’s how capitalism works,” Biden said.
Customers will “have access to their money starting today. That includes small businesses across the country who have to bank there and do the payroll, pay their bills and stay open for business,” Biden said, adding that there will be no loss from taxpayers.
“Instead, the money will come from the fees banks pay into the deposit insurance fund,” he explained.
The FDIC’s Deposit Insurance Fund (DIF) is used to help pay for operating expenses and bail out failing banks. It is funded by quarterly fees collected from FDIC-insured banks and interest income from its investments in government bonds.
As of December 31, 2022, the DIF’s fund assets were $128.2 billion, according to the FDIC. Under the requirements of the Dodd-Frank Act, the FDIC must have enough in the DIF coffers to cover 1.35 percent of insured deposits, CNN reported.
The President also said there must be a “full reckoning” of how this situation happened and steps must be taken to ensure it “never happens again”.
“No one is above the law in my administration,” Biden said, before asking Congress to restore banking regulations that were reversed during the Trump administration.
Biden administration officials announced Sunday that depositors with accounts at Silicon Valley Bank will have access to all of their money starting Monday and “no losses related to the dissolution of Silicon Valley Bank will be borne by the taxpayer.”
The emergency measure “fully protects” all depositors, said Treasury Secretary Janet Yellen, Federal Reserve Board Chair Jerome Powell and Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg.
Biden also assured the American people and companies on Sunday that a solution to the collapse of the Silicon Valley bank would not endanger taxpayers’ money.
Also Read: Silicon Valley Bank Collapse: Regulators Say Customers Can Access Their Money Starting Today
He said that at his direction, the Treasury Secretary and the director of the National Economic Council have been working diligently with banking regulators to address issues at SVB and Signature Bank.
The Federal Reserve Board announced Sunday it would provide additional funding to eligible depository institutions to ensure banks are able to meet the needs of all of their depositors.
The move will ensure that the U.S. banking system continues to fulfill its vital role in protecting deposits and providing access to credit for households and businesses in a way that fosters strong and sustained economic growth, the statement said.
Sen. Mark Warner, a member of the Senate Banking Committee, said after an unprecedented and reckless run on Silicon Valley Bank, there is a very real risk that instability could spread to other institutions and erode our national security and technological innovation ecosystem.
California Gov. Gavin Newsom said the Biden administration acted quickly and decisively to protect the American economy and boost public confidence in our banking system.
“Your actions this weekend have calmed nerves and had a profoundly positive impact on California, on our small businesses who can now file payrolls, workers who get their paychecks, affordable housing projects who can continue construction, and nonprofits.” who can keep their doors open tomorrow,” he said.
“California is a pillar of America’s economy, and leaders have done the right thing to ensure our innovation economy can continue to grow and thrive,” Newsom said.
Deeply ingrained in the tech startup scene, Silicon Valley Bank was the go-to bank for many high-flying startups.
The bank failed after customers — many of them venture capital firms and VC-backed firms the bank had built over time — began withdrawing their deposits, sparking a run on the bank (among the largest U.S. bank runs in more than one year decade).
Bank runs occur when panicked customers or investors start withdrawing their money, leaving the bank unable to pay its due liabilities.
The abrupt collapse of the Silicon Valley bank last week has unnerved and jittery Silicon Valley entrepreneurs.
The Federal Deposit Insurance Corporation seized Silicon Valley Bank’s assets on Friday — an action that reportedly took place in the middle of the business day, underscoring the seriousness of the situation.
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https://www.zeebiz.com/world/news-joe-biden-says-us-banking-system-is-safe-after-silicon-valley-bank-collapse-225663 Joe Biden Says US Banking System Safe After Silicon Valley Bank Collapse