President Joe Biden on Monday underscored that the American banking system remains safe, laying out how his administration is taking action to contain Silicon Valley Bank’s collapse.
“Americans can rest assured that our banking system is safe. Your deposits are safe,” Biden said from the Roosevelt Room. “Let me also assure you we will not stop at this. We will do whatever is needed on top of all this.”
Biden used his speech – which was only announced Sunday night – to allay fears, directly explaining what he has instructed his administration to do to protect small businesses and workers in the wake of a regulator shutdowns of both Silicon Valley Bank and Signature Bank over the last few days. These actions include backstopping depositors’ funds, making sure taxpayers are not on the hook for these moves, holding those responsible accountable and declining to extend relief to investors of Silicon Valley Bank.
The president said affected customers can “rest assured” that they will have access to their money on Monday.
“Management of these banks will be fired. If the bank is taken over by FDIC, the people running the bank should not work there anymore,” Biden said, adding that investors in the banks will “not be protected” because they knowingly took a risk.
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.
Treasury Department officials have paid especially close attention to the flows of deposits in the wake of their Sunday actions and have seen signs that deposit outflows from small and midsized lenders have slowed, according to a senior Treasury official.
White House and Treasury Department officials spent the day in regular contact with regulators and bank executives as they monitor the effect of their dramatic emergency actions over the weekend.
While the early reports don’t mean the risks have dissipated, they do signal that a central component of the administration’s strategy – sending a clear message to depositors that their deposits were, in fact, safe – has had an effect.
“The thing we were targeting was uninsured depositors feeling as if they weren’t protected,” the official said. “The scale and the breadth of what we did has sent that message.”
While regional bank stocks have been hammered throughout the day, there’s also some cautious optimism that their efforts are having an effect as Wall Street firms – most notably JPMorgan – have opened up new lines of credit to some of the most at-risk banks.
Smaller lenders, also viewed as potentially at risk in the event of contagion, have reported stable conditions.
It’s clear, however, that administration officials are bracing for – and moving quickly to try and frame – the political fallout. Biden’s remarks before departing for his West Coast trip included implicit nods to that reality.
The focus on new regulations is tied to that, as were Biden’s explicit, and repeated, assurances that taxpayer dollars are not at risk.
“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.”
The chaos instigated by high interest rates led to the old-fashioned bank run last Thursday, in which depositors yanked $42 billion from Silicon Valley Bank.
SVB provided financing for almost half of US venture-backed technology and health care companies. At the end of 2022, the bank said it had $151.5 billion in uninsured deposits, $137.6 billion of which was held by US depositors.
While relatively unknown outside Silicon Valley, the bank was among the top 20 American commercial banks, with $209 billion in total assets at the end of last year, according to the FDIC. It’s the largest lender to fail since Washington Mutual collapsed in 2008.
Despite initial panic on Wall Street over the run on Silicon Valley Bank, which caused its shares to crater, analysts said the bank’s collapse was unlikely to set off the kind of domino effect that gripped the banking industry during the 2008 financial crisis.
Top administration officials entered the weekend alarmed by the failure of SVB and on high alert for additional risk. They maintained, however, a clear belief in the broader stability of the US banking system.
While that belief hasn’t shifted, multiple officials said, it became increasingly clear over the course of 36 hours among senior officials across the bank regulators, Treasury Department and the White House that the system was facing the threat of widespread contagion, driven primarily by fear and uncertainty.
Biden, who was at his Delaware home for the weekend, was briefed regularly by National Economic Council Director Lael Brainard. As regulators moved toward the solution they would launch, Treasury Secretary Janet Yellen presented the full plan in consultation with Biden, officials said. The president signed off on the plans.
The action required would be dramatic and sweeping in its scale, made up of two components designed to address the near-term crisis and snuff out any longer term spillover effects.
The bank’s uninsured deposits would be fully backed by the US government. Officials also had their eyes on several similar banks that were on the verge of failure, two people familiar with the matter said. A Federal Reserve lending facility would launch to ease any liquidity squeezes.
“Speed matters in moments like this,” a senior administration official said of the sharp turn toward dramatic emergency actions. “These actions should help prevent any additional contagion.”
Inside the administration, the central goal at the start of the weekend was to facilitate the purchase of Silicon Valley Bank’s assets and oversee a clean transfer of ownership that protected the tens of billions of dollars in uninsured deposits that were at risk. Private sector solutions, however, were slow to form in a manner federal officials thought would adequately address the issue, officials said.
All the while, a second bank was on the brink of failure – Signature Bank would be seized by state regulators on Sunday afternoon – and several others appeared headed for a similar fate. Uninsured depositors were in a panic – and with social media as an accelerant, officials saw an acute risk depositors across the financial system would rapidly pull their regional and community banks.
The decision to deploy dramatic emergency measures were designed to freeze the spillover effects. The actions “should act to reduce depositor runs on what are solvent institutions,” a senior Treasury official said.
Officials are optimistic that the efforts put into place will have the intended effect. The bank many inside and outside the administration viewed as the likely next domino to fall – First Republic – secured additional financing from JPMorgan Chase & Co. after the Fed’s announcement. The moves mean First Republic now has $70 billion in unused liquidity, firepower it can use to respond to potential customer withdrawals.
Still, First Republic Bank shares were plunging by about 60% in premarket trading on Monday even after the regional lender announced steps to shore up its balance sheet.
The portfolio makeup of Silicon Valley Bank is not one that is widely shared across the banking industry, officials noted, and therefore remains isolated so long as there is broader confidence in the market.
That, more than anything else, drove actions that appeared unlikely just a few days prior, officials said.
“This is a significant way to enhance confidence,” a separate administration official said, adding that officials will be closely watching the market reaction Monday morning. “Right now, we’re going to keep our focus on making sure we address this.”