Biden: ‘Banking system is safe’
Speaking at the White House, Joe Biden is attempting to reassure Americans that the banking system will hold up.
“Thanks to the quick action in my administration over the past few days, Americans can have confidence that the banking system is safe,” the president said.
“Your deposits will be there when you need them. Small businesses across the country that deposit accounts at these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills. And their hardworking employees can breathe easier as well.”
Key events
How did we get here? How could one California bank’s problems end up potentially jeopardizing the entire US economy, to the extent that the government has to suddenly step in? For the answers, here’s the Guardian’s Jonathan Barrett:
Four decades ago, Silicon Valley Bank (SVB) was born in the heart of a region known for its technological prowess and savvy decision making.
The California-headquartered organisation grew to become the 16th largest bank in the US, catering for the financial needs of technology companies around the world, before a series of ill-fated investment decisions led to its collapse.
What happened to SVB?
As the preferred bank for the tech sector, SVB’s services were in hot demand throughout the pandemic years.
The initial market shock of Covid-19 in early 2020 quickly gave way to a golden period for startups and established tech companies, as consumers spent big on gadgets and digital services.
The next big indicator of whether the Silicon Valley Bank failure will spark a wider crisis may come from Wall Street.
Don’t worry, this isn’t going to become a stock market blog, but today, it’s important. Trading just started, and the three major indices, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index, are all lower – though only by about 1%, at most.
If markets really tank, as in, if they lose several percentage points in the course of the trading day, as happened when Covid-19 was breaking out across the United States three years ago, Washington could be pressured to more forcefully act to protect the banking sector.
Biden calls for Congress to restore Dodd-Frank protections
Joe Biden has called for Congress to restore banking regulations first implemented after the 2008 financial crisis but rolled back by Donald Trump.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act signed by Barack Obama increased financial regulations on banks in the wake of the crisis, but in 2018, Trump eased those rules – which Biden said set the stage for the failures of Silicon Valley Bank and Signature Bank, a New York-based institution that closed over the weekend.
“We must reduce the risk of this happening again,” Biden said. “During the Obama-Biden administration, we put in place tough requirements on banks, like Silicon Valley Bank and Signature Bank, including the Dodd-Frank law, to make sure that the crisis we saw in 2008 would not happen again. Unfortunately, the last administration rolled back some of these requirements. 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, and to protect American jobs and small businesses.”
He also called for an investigation into how the two banks went down.
“There are important questions of how these banks got into the circumstance in the first place. We must get the full accounting of what happened,” Biden said.
With many Americans still bitter over Washington’s assistance to large banks during the 2008 global financial crisis, Biden made a point in his speech of saying no bailout was happening under his watch.
“No losses, and this is an important point, no losses will be borne by the taxpayers,” Biden said. “Let me repeat that: no losses will be borne by the taxpayers. Instead the money will come from the fees that banks pay into the Deposit Insurance Fund.”
He also noted that “management of these banks will be fired”, and “investors in the banks will 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.”
Biden: ‘Banking system is safe’
Speaking at the White House, Joe Biden is attempting to reassure Americans that the banking system will hold up.
“Thanks to the quick action in my administration over the past few days, Americans can have confidence that the banking system is safe,” the president said.
“Your deposits will be there when you need them. Small businesses across the country that deposit accounts at these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills. And their hardworking employees can breathe easier as well.”
When Joe Biden speaks in a few minutes, he will have one goal: convince everyone to calm down.
His specific audience will be people who keep their money in small- and medium-sized institutions similar to Silicon Valley Bank, which are seen as most vulnerable to what economists call “contagion”. If customers at these banks believe they are going to collapse, as Silicon Valley Bank did on Friday, they will do what any sensible person would do and pull out their money – potentially causing the very crisis they fear, because such mass withdrawals would stress these banks’ financial underpinnings.
Biden speaks at 9am ET, and this blog will follow it as it happens.
Biden to reassure markets after bank collapse sparks fear of crisis
Good morning, US politics blog readers. We’re going to hearing from Joe Biden first thing this morning at 9am ET, after last week’s collapse of Silicon Valley Bank sparked fears of a crisis that could destabilize the world’s largest economy. The US government worked over the weekend to prevent that from happening, by announcing it had taken steps to make sure account holders at the now-shuttered California bank would be able to access all their money starting today, and announcing a new Federal Reserve credit line intended to fortify other institutions that are teetering on insolvency. Expect to hear plenty from lawmakers and 2024 presidential contenders about whether the moves are appropriate, or if Washington just pulled off another bank bailout. Perhaps more importantly, pay attention to the reaction on Wall Street when it starts trading at 9.30am – if markets plunge or more banks see runs on the deposits, the Biden administration may have to step in again.
Here’s what else is happening today:
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Biden is traveling to San Diego for a meeting with the prime ministers of Australia and Britain and the announcement of a massive deal for new submarines.
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Donald Trump’s former lawyer Michael Cohen is testifying before a Manhattan grand jury investigating hush money payments he made for the former president.
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Mike Pence strongly rebuked Trump for his actions on January 6 in a weekend appearance, saying history would hold his former boss accountable for the insurrection.
