New York, March 13, 2023 — President Joe Biden insisted Monday that the nation’s banking system was safe, seeking to project calm after the collapse of two banks stirred fears of a broader upheaval and prompted regulators to offer emergency loans to banks to stave off additional failures.
“Your deposits will be there when you need them,” Biden said.
Despite the message from the White House, investors continued to dump shares in bank stocks. Shares of First Republic Bank plunged more than 70% even after the bank said it was accessing emergency funding from the Federal Reserve as well as additional funds from JPMorgan Chase.
U.S. regulators closed the Silicon Valley Bank on Friday after depositors rushed to withdraw their funds all at once. It was the second largest bank failure in U.S. history, behind only the 2008 failure of Washington Mutual. New York-based Signature Bank also collapsed in the third-largest failure in the U.S.
Speaking from the White House shortly before a trip to the West Coast, the president said he would seek to hold those responsible accountable, and he pressed for better oversight and regulation of larger banks. He promised that no losses would be borne by taxpayers.
“We must get the full accounting of what happened,” he said. “Americans can have confidence that the banking system is safe.”
Biden also said the managers of the banks should be fired.
“If the bank is taken over by the FDIC, the people running the bank should not work there anymore,” he said, referring to the Federal Deposit Insurance Corp., the agency responsible for ensuring the stability of the banking system.
Michele Barry, a teacher who was at Silicon Valley Bank on Monday, said members of the FDIC and bank employees were available to answer questions.
Barry, who also runs an after-school program for children, wanted to make sure that her four employees would be paid. She was told that all checks from Friday would be honored, along with her automatic payments.
Barry left enough in her account to cover the payments, but she transferred the bulk of her money over to another bank. She said Biden’s reassurance was helpful.
“I’m from South Africa. Chances are if this happened in South Africa, nobody would insure your money,” she said.
International regulators also had to step in to ease investor fears. The Bank of England and U.K. Treasury said they had facilitated the sale of a Silicon Valley Bank subsidiary in London to HSBC, Europe’s biggest bank. The deal protected 6.7 billion pounds ($8.1 billion) of deposits.
Under the plan announced by U.S. regulators, depositors at Silicon Valley Bank and Signature Bank, including those whose holdings exceed the $250,000 insurance limit, will be able to access their money on Monday. Under a new Fed program, banks can post those securities as collateral and borrow from the emergency facility.
The Treasury has set aside $25 billion to offset any losses incurred. Fed officials said, however, that they do not expect to have to use any of that money, given that the securities posted as collateral have a very low risk of default.
New York bank regulators took possession of Signature Bank on Sunday, ousting its leaders and handing day-to-day control over to the FDIC as part of a move in which the federal government agreed to guarantee full deposits — even those over the $250,000 threshold.
New York Gov. Kathy Hochul described the decision by the state Department of Financial Services as aimed at holding off a bigger crisis involving more banks.
“Our view was to make sure that the entire banking community here in New York was stable, that we can project calm,” Hochul said in a news conference Monday.
She said a high volume of withdrawals that began last week continued with online transactions through the weekend. The bank was open Monday under the name of Signature Bridge Bank.
Signature, which was founded more than two decades ago, has about 40 offices across the country and says it focuses on banking for privately owned businesses, their owners and senior managers.
Though Sunday’s steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, the actions were relatively limited compared with 15 years ago.
The two failed banks themselves have not been rescued, and taxpayer money has not been provided to them.
Some prominent Silicon Valley executives feared that if Washington did not rescue their failed bank, customers would make runs on other financial institutions in the coming days. Stock prices plunged over the last few days at other banks that cater to technology companies, such as First Republic and PacWest Bank.
Among the bank’s customers are a range of companies, including many California wineries that rely on Silicon Valley Bank for loans, and technology startups devoted to combating climate change.
Tiffany Dufu, founder and CEO of The Cru, a New York-based career coaching platform and community for women, had her money tied up at Silicon Valley Bank.
She said in video on LinkedIn that she had to pay employees out of her personal account. With two teenagers to support who will be heading to college, she said she was relieved to hear that the government intends to make depositors whole.
“Small businesses and early stage startups don’t have a lot of access to leverage in a situation like this, and we’re often in a very vulnerable position, particularly when we have to fight so hard to get the wires into your bank account to begin with, particularly for me, as a Black female founder,” Dufu said. – AP