Biden administration tries to quell bank crisis with government intervention
WASHINGTON (Gray DC) - The collapse of Silicon Valley Bank in California, New York-based Signature Bank, and troubles at the San Francisco-based First Republic Bank are sending shivers through financial markets. To quell concerns, the Biden administration says it is ensuring everyone banking with the failed institutions is made whole.
“Americans can have confidence that the banking system is safe,” said President Joe Biden in a Monday morning address.
The Biden administration intervened in hopes of averting another banking crisis. Silicon Valley Bank, a big lender in the tech world, failed last week when depositors tried to withdraw billions of dollars. The bank run stoked fears deposits would be completely lost. U.S. financial institutions stepped in late Sunday to make depositors whole, but not the bank or its investors. The U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) announced all depositors would have access to their money beyond the usual $250,000 insurance limit.
“Your deposits will be there when you need them. Small businesses across the country that deposited accounts at these banks can breathe easier knowing they can pay their workers and pay their bills,” said President Biden.
The administration also says taxpayer dollars are not being used in the rescue effort, hoping to prevent the term “bailout” from being used – a term that dominated the 2008 financial crisis discourse. The recent upheaval is raising questions regarding the fragility of our banking system.
“There were a lot of risks lurking, but it seemed like you could ignore them, and then they came,” said Anat Admati, a finance professor at Stanford University in the heart of Silicon Valley.
Admati says this is essentially a bailout. She puts the blame at the feet of regulators and politicians for letting the banks get to this point.
“It’s pretty cynical around here all this ‘free market’ discussion about how, suddenly, we do need the government,” said Admati.
President Biden also said Monday the Trump administration rolled back banking regulations. Biden is calling on Congress to further regulate the banking industry to try to prevent these failures in the future.
Copyright 2023 Gray DC. All rights reserved.