President Joe Biden sought to reassure jittery consumers and markets the US financial system is on solid footing, promising to hold responsible those behind the collapse of two banks and saying he would urge Congress to strengthen regulation of the banking system.
(Bloomberg) — President Joe Biden sought to reassure jittery consumers and markets the US financial system is on solid footing, promising to hold responsible those behind the collapse of two banks and saying he would urge Congress to strengthen regulation of the banking system.
“Americans can have confidence that the banking system is safe. Your deposits will be there when you need them,” Biden said Monday at the White House after the collapse of Silicon Valley Bank and Signature Bank raised fears of a full-blown banking crisis.
The president said all customers who had deposits at both banks can “rest assured they’ll be protected and they’ll have access to their money as of today.”
Regional banks led declines among the 24 stocks on the KBW Bank Index, which plunged the most since March 2020. The gauge is heading for a sixth straight decline, the longest since October. Western Alliance Bancorp plummeted 61% before a trading halt, and First Republic Bank dived 66%.
Biden said he would ask Congress and banking regulators “to strengthen the rules for banks to make it less likely this kind of bank failure would happen again, and to protect American jobs and small businesses.”
But he didn’t specify any policy proposals, and any attempt to further regulate banks would likely encounter resistance in the Republican-controlled House. Biden, whose economic team recently underwent a significant turnover, is already facing a showdown with GOP lawmakers over raising the federal debt ceiling as he prepares to launch a planned 2024 reelection bid.
“Changing the rules after the crash to prop-up liberal investors at the expense of taxpayers is pure crony capitalism,” said David McIntosh, president of the Club for Growth, a conservative group focused on economic policy. “The additional regulations being proposed by Biden would only make the situation worse and further consolidate power among the big banks and hurt regional banks that small businesses rely on.”
John Berlau, director of finance policy at the Competitive Enterprise Institute, said “prudent banks suffering the fallout from SVB should not be punished by a flood of counterproductive red tape.”
The last major financial overhaul, the Dodd–Frank Wall Street Reform and Consumer Protection Act, took more than a year to get enacted, even with Democrats in control of both chambers of Congress and the White House.
Biden said no losses would be borne by taxpayers and that those responsible for the banks’ collapses would be held accountable.
“Investors in the banks will not be protected,” he said. “They knowingly took a risk and when the risk didn’t pay off investors lose their money. That’s how capitalism works.”
US authorities took extraordinary measures Sunday to shore up confidence following the bank failures, including a new backstop for banks that Federal Reserve officials said was large enough to guarantee the nation’s deposits. The collapse of SVB Financial Group last week is the second-largest bank failure in US history, stoking concerns about oversight of the industry.
Earlier: US Backstops Bank Deposits to Avert Crisis After SVB Failure
The announcement by the Federal Reserve and Federal Deposit Insurance Corp. came near the end of a frantic weekend that saw the collapse of the New York-based Signature Bank along with mounting concerns about spillover effects from SVB and Signature on other regional lenders and the broader economy.
A financial crisis would pose a major challenge to Biden ahead of 2024. Republicans have accused the president’s policies of fueling inflation, while some on the left have questioned the pace of the Fed’s rate hikes.
Read More: Biden Says Those Behind SVB Bank ‘Mess’ Will Be Held Accountable
In addition to the deposit backstop, the FDIC said it would make whole “all depositors” at Signature Bank while resolving SVB in a way that “fully protects” all its depositors. The Fed also announced a program that offered banks one-year loans on more favorable terms and relaxed terms for lending through its discount window.
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