President Joe Biden on Monday sought to reassure jittery Americans that they can have confidence that the US banking system is “safe” and vowed stricter bank regulation after a string of bank failures raised concerns about the nation’s financial stability.
The president’s early morning comments came after US bank regulators spent the weekend working on a plan to shore up the public’s confidence in the soundness of the financial system and limit spillover effects following the closing of the Silicon Valley Bank last week.
“Americans can rest assured that our banking system is safe. Your deposits are safe,” Biden said from the Roosevelt Room of the White House. Taxpayers will not bear any losses from the move, which will be funded by fees regulators charge to banks, he said. The banks’ leaders will be fired, he added.
Biden in his address allayed fears, directly explaining what he has instructed his administration to do to protect small businesses and workers in the wake of regulator shutdowns of both Silicon Valley Bank and Signature Bank over the last few days.
The California-based Silicon Valley Bank (SVB), the 16th largest bank in the United States, was closed 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 failure of a US bank since the financial crisis in 2008. It came after SVB was scrambling to raise money to plug a loss from the sale of assets affected by higher interest rates. Word of the troubles led customers to race to withdraw funds leading to a cash crisis. Authorities on Sunday also said they had taken over Signature Bank of New York, which was seen as the institution most vulnerable to a similar bank run after SVB. “Every American should feel confident that their deposits will be there if and when they need them,” President Biden said. “Let me also assure you. we will not stop at this. We’ll do whatever is needed.”
Investors in the banks, however, will not be protected, the president said, and management will 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 as of today. That includes small businesses across the country that bank there and need to make payroll, pay their bills and stay open for business,”
Biden said, adding that no losses will be suffered by the taxpayers.
“Instead, the money will come from the fees that banks pay into the deposit insurance fund,” he explained.
The FDIC’s Deposit Insurance Fund (DIF) is used to help pay for operating costs as well as to resolve failed banks. It’s funded by quarterly fees collected from FDIC-insured banks as well as interest earned from its investments in Treasury securities.
As of December 31, 2022, the DIF’s fund balance was USD 128.2 billion, according to the FDIC. Under requirements put in place by the Dodd-Frank Act, the FDIC has to have enough in the DIF coffers to cover 1.35 per cent of insured deposits, CNN reported. The president also said there must be a “full accounting” of how this situation happened and steps must be taken to ensure this “never happens again.”
“In my administration … no one is above the law,” Biden said, before calling on Congress to restore banking regulations rolled back 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 beginning Monday, and “no losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer.”
