- By Natalie Sherman
- Business Correspondent, New York
President Joe Biden said the US would do “whatever it takes” to improve banks after a series of failures raised fears about financial stability.
His comments came after the US guaranteed all deposits at Silicon Valley Bank and Signature Bank, both of which collapsed last week.
US tries to stop people withdrawing funds from banks after SVP collapses on rush withdrawals
Americans “need to be confident that our banking system is safe,” Mr Biden said.
Individuals and traders who have deposited money with SVB will be able to withdraw their money from Monday, he said.
Taxpayers will bear no loss from the move, which extends protection beyond $250,000 (£205,000) of deposits normally insured by the government. Instead, the payment regulator’s funding will be charged to the banks.
Mr Biden spoke early on Monday as the failures of SVB and Signature, the country’s 16th largest bank, raised concerns about a wider financial crisis.
“I assure you we will not stop here, we will do what is necessary.”
How Silicon Valley Bank Collapsed?
SVB – which specializes in lending to technology companies – was shut down by regulators who seized its assets on Friday. It was the biggest failure of a US bank since the 2008 financial crisis.
It comes after SVB scrambled to raise cash to offset losses from selling assets hit by high interest rates. Word of the problems led to a race for customers to withdraw funds leading to a cash crunch.
Officials said on Sunday that it had acquired Signature Bank of New York, which had many clients in crypto and was considered the most vulnerable institution to a similar bank takeover since SVB.
The failures, which followed last week’s collapse of another bank, Silvergate Bank, are symptomatic of problems at other institutions.
US financial markets were roughly flat in early trading on Monday.
But shares of many banks were under pressure. Shares of San Francisco-based First Republic Bank fell about 70% before the trading halt on Monday, as investors sold shares worried it could be next.
As part of their measures to restore confidence, regulators unveiled a new way to give banks access to emergency funds, making it easier for banks to borrow in a crisis.
Paul Ashworth, chief North America economist at Capital Economics, said U.S. officials have “acted aggressively to prevent contagion.”
“Rationally, this should be enough to prevent the spread and elimination of any contagion that could happen in the blink of an eye in the digital age. But contagion is always about irrational fear, so we’ll stress that. There’s no guarantee it will work,” he added.
The moves have reignited debates about how much the government should do to regulate and protect banks that have been battered since the 2008 financial crisis.
Mr Biden called for tougher regulation and insisted investors and bank chiefs would not be left out.
“They knowingly took a risk, and when the risk didn’t pay off his adjusters lost money. That’s how capitalism works,” he said.
Yet Republican Senator Tim Scott, seen as a possible presidential candidate in 2024, said the recovery was “problematic.”
“Building a culture of government intervention will not prevent future companies from relying on government after taking on more risks,” he said.
Again people are worried about banks. A serious debate is going on about bailouts again. But this isn’t 2008.
After the global financial crisis, the focus was on reforming banks deemed ‘too big to fail’. Today’s problems center on medium and small-sized banks.
The two banks that collapsed — Signature Valley Bank and Signature Bank — had one thing in common: Their business models were too concentrated in one sector, and they were overexposed to assets stressed by rising interest rates.
The criticism is that they should have foreseen this and did not. US Federal Reserve Chairman Jerome Powell is considered one of the most outspoken leaders in the history of the US central bank, going to great lengths to signal the central bank’s intention to raise interest rates.
As most banks are well diversified and have plenty of cash on hand to meet their obligations, the assumption is that the risk to other banking sectors is low. That doesn’t stop regulators from looking at what’s wrong and what rules need to be changed.
And the pressure on small and medium-sized banks has not gone away. It remains to be seen what will happen to the US economy and the fight against inflation.
SVB started as a California bank in 1983 and has expanded rapidly over the past decade as the technology industry has evolved. An important lender to early-stage businesses in the industry, it was the bank partner for nearly half of the US venture-backed technology and healthcare companies that listed on stock exchanges last year.
The company has come under pressure in the past year as high interest rates make it harder to bring in new money through private fundraising or share sales, which have increasingly attracted deposits from its customers.
The revelation hastened withdrawals, while raising fears that other banks could face huge losses if they had tied up large amounts of cash in bonds.
Central banks around the world – including the US Federal Reserve and the Bank of England – have raised interest rates sharply as they struggle to contain rising prices.
Those moves have reduced demand for low-yield bonds, which creates problems for owners like SVB if conditions force a sale.
Echoes of the collapse are widespread in Silicon Valley, as companies grapple with questions about what it means for their finances.
Etsy and Roku are among the big companies that have banked money.
Etsy said it will be forced to delay some payments to sellers as a result, but expects to be able to use other payment partners soon.