World leaders react to the collapse of the Silicon Valley bank
The collapse of Silicon Valley Bank prompted officials to react as customers in Southern California lined up to withdraw funds from First Republic Bank.
Claire Hardwick, USA TODAY
WASHINGTON — President Joe Biden earlier this month knew he needed to exude command and confidence as he prepared to deal with a brewing banking crisis that would rock financial markets.
He had learned that lesson the hard way a decade and a half ago, during the country’s worst financial crisis since the Great Depression.
Just days after becoming vice president in 2009, in the midst of a financial crisis that began the year before, Biden mused that even if the new administration did everything right, “there’s still a 30 percent chance we’re doing something wrong.” . The comment did little to bolster economic confidence, and Biden’s boss, President Barack Obama, had to correct the error by clarifying that the then-vice president had no intention of casting doubt on the wisdom of the administration’s bailout plan.
In today’s crisis, Biden seems intent on avoiding any ambiguity. He has tried to calm financial markets, ensure bank customers have access to their money and, just as importantly, tried to convince the public that government intervention to bail out troubled banks is not a bailout.
“Americans can have confidence that the banking system is safe — your deposits are there when you need them,” Biden said from the White House Roosevelt Room as he outlined steps his administration would take to quell the crisis.
“No losses,” he added, “will be borne by taxpayers.”
Whether Biden gets it right this time remains to be seen.
Biden’s handling of the economy has been his biggest test as president and will be judged most if he runs for re-election, as expected.
A new poll shows what he’s dealing with. Less than a third of the public approves of Biden’s handling of the economy, according to an Associated Press-NORC Center for Public Affairs Research poll released Thursday that showed his overall approval rating is near the lowest point of his presidency. Even among Democrats, there is a 13 percentage point difference in how Biden is viewed overall versus his economic responsibilities.
The survey was conducted after two regional banks — Silicon Valley Bank and Signature Bank — collapsed earlier this month. The risk that the defaults could spread to other financial institutions convinced Biden of the need to intervene. The Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation took the extraordinary step last week of guaranteeing deposits at banks after regulators shut down both.
And While Treasury Secretary Janet Yellen said on Tuesday that the “situation is stabilizing”, the government is not out of the woods.
The banking crisis hampered the Federal Reserve’s efforts to tame inflation by raising interest rates, and stocks fell on Thursday after Fed Chair Jerome Powell declined to make or imply any rate cuts later this year.
Still, Powell and the White House said the US could bring inflation back to acceptable levels while avoiding a recession.
“We don’t see a recession or a pre-crisis,” White House press secretary Karine Jean-Pierre said on Wednesday. “We see a strong economy.”
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Memories of the financial collapse of 2008
For many, the collapse of Silicon Valley Bank and Signature Bank brought back painful memories of the 2008 financial meltdown. Biden and members of his inner circle were well aware of the comparisons as they huddled in the Oval Office on Friday, March 10, to contemplate their options.
However, Biden and his team felt that what happened this time was very different from 2008. Senior bank executives responsible for the banks’ troubles would be fired. This time, government intervention would not involve taxpayers’ money, but would instead rely on bank bonuses and interest earned on money invested in US Treasury bonds.
For the next 48 hours, Biden’s team worked behind the scenes to analyze the latest data and come up with a course of action. Biden spoke to Yellen on multiple occasions. He spoke to California Gov. Gavin Newsom about the collapse of Silicon Valley and its aftermath.
The government’s main concerns included halting widespread panic when people with deposits at those two banks were unable to access them Monday morning and sparking fears of a run on other banks if depositors rushed to cash out their accounts, a said senior White House official on condition of anonymity to USA TODAY.
“This idea that if you put money in the bank, you should have access to it was really important to him,” the White House official said, referring to Biden’s approach to dealing with the crisis.
One of the possibilities discussed was that another financial institution could step in and buy Silicon Valley Bank. When that didn’t materialize, regulators knew a public announcement was being made from the President on the steps needed to stabilize the financial system and avoid a broader panic.
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It’s not clear if Biden can avoid the taint of being accused of bailing out banks. Biden is proud of the role he played in the Obama administration in what he wrote in his memoir, “designing and executing the plan that helped President Obama move the country from crisis to recovery.” to lead”.
But he also got a first-hand look at the political unpopularity of the government buying distressed assets from big banks and other financial institutions before the Great Recession.
“It appears that his communications are heavily influenced by this experience,” said Steven Kelly, a financial crisis management expert at Yale University’s Financial Stability Program. “He was quick to emphasize that this is not a bailout. Shareholders are penalized. This is really about protecting the average depositor.”
“We must act quickly”
Despite Biden’s response, criticism comes from both the left and the right.
South Carolina Senator Tim Scott, the top Republican on the Senate Banking Committee who is considering a presidential nomination, told Fox News the decision to insure all SVB deposits was “the greatest form of nepotism we’ve seen in a long time.” have a long time.”
Vermont Senator Bernie Sanders, who accused Biden of rescuing “crooks on Wall Street” at a 2020 presidential campaign rally, warned of “more socialism for the rich.”
California Rep. Ro Khanna, a leading progressive Democrat whose district lies in the heart of Silicon Valley, said it’s important that Biden keep pushing to hold failed bank executives accountable and achieve greater regulation.
“But I think he’s going to do those things,” Khanna said, and “will look good because he took the decisive actions and showed leadership in the required timeframe.”
Khanna had urged the government to act quickly, calling out Yellen both publicly on CBS “Face the Nation,” and Steve Ricchetti, a top Biden adviser, at the annual Gridiron white-tie dinner attended by politicians and journalists at the Participated at the weekend, buttoned up privately The administration weighed up its options.
“I understood, because I represent Silicon Valley, how quickly the situation was developing,” Khanna told USA TODAY. “I understood how many small businesses were pressured to defer their deposits.”
Khanna was frustrated with his conversations with FDIC officials, who he felt were “hiding behind bureaucratic language.” And he wanted to convey to the White House the importance of not only insuring every deposit with SVB, but announcing that decision before the markets open on Monday.
“Steve Ricchetti got it,” Khanna said. “He said, ‘Well, I see. I understand we need to act quickly.’”
Speed is particularly important, according to Kelly, Yale’s expert on financial crisis management, because the changes introduced after the 2008 financial crisis limited the ability of the executive branch, the Federal Reserve and the FDIC to contain a crisis.
“It’s incredibly important that they don’t let a fire burn too long before they react to it,” Kelly said. “They made the right thing out of a risk management game by looking at the risks that were out there and saying, ‘Okay, this bank might not be the biggest bank, it might not be super systemic, we don’t have the tools , which we need when it comes to the next big bank.’”
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But Aaron Klein, who worked at the Treasury Department on financial regulatory reform during the Obama administration, believes protecting all SVB depositors was not the right decision.
“The government is not here to bail out wealthy venture capitalists who have poured tens of millions of dollars into a troubled bank,” he said.
Klein doesn’t blame Biden for this, instead pointing the finger at the independent Federal Reserve, which he said failed to properly monitor the SVB.
Blaming Biden, Klein said, would be like asking what paramedics could have done differently to help a heart attack victim after his cardiologist prescribed a McDonald’s diet.
And Klein gives Biden credit for wanting to hold bank executives accountable.
Congress responds: After the SVB collapse, lawmakers raise the FDIC deposit insurance ceiling to $250,000
Hearings that the House and Senate will call next week will determine whether the administration deserves any blame, said Doug Heye, a Republican political strategist who worked in Congress and the George W. Bush administration.
“What did this government do right or wrong? Was it just this government, or were there mistakes made by the previous government, warning signs that were missed or ignored?” Hey said.
Whether the crisis crosses voters’ minds will depend on how deep the problems are and how long they last.
“We’ll just have to wait and see,” Heye said, “how all these banking-related issues play out over the coming weeks, but months.”
Maureen Groppe and Michael Collins cover the White House. Follow Groppe on Twitter @mgroppe and Collins @mcollinsNEWS.
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