President Joe Biden has said that investors in the collapsed Silicon Valley Bank will “lose their money” because “that’s how capitalism works.”
In a prepared address, Biden assured the American people that he has confidence that the U.S. banking system is safe.
“Your deposits will be there when you need small businesses across the country,” Biden said while speaking before his visit to California on Monday.
“The deposit accounts at these banks can breathe easier knowing they’ll be able to pay their workers and can pay their bills.
“And their hard-working employees can breathe these as well.”
He explained that all customers, including small businesses, who had deposits at SVB and Signature would have access to their money immediately.
“The bottom line is this: Americans can rest assured that our banking system is safe,” he said.
If the Federal Deposit Insurance Corp. (FDIC) takes over these banks, management will be terminated and investors will not be protected.
“They [investors] knowingly took a risk, and when the risk didn’t pay off, investors lose their money,” Biden said.
“That’s how capitalism works.”
He emphasized that “no losses will be borne by the taxpayers,” adding that the money will come from fees that financial institutions pay into the Deposit Insurance Fund.
Looking ahead, federal regulators will assess how these banks got into this financial mess in the first place and ensure those responsible for these actions are held accountable so that this never happens again.
“Because of the actions that our regulators have already taken, every American should feel confident that their deposits will be there if and when they need them,” he said.
“In my administration, no one is above the law,” the president added.
Biden also blamed President Donald Trump for what occurred, asserting that his administration rolled back requirements that would prevent another financial crisis as in 2008–09 from transpiring.
As a result, he will ask Congress and the banking regulators to strengthen rules for banks “to make it less likely this kind of bank failure would happen again.”
In a joint statement on Sunday, the Federal Reserve, the Treasury Department, and the FDIC announced an emergency plan to designate SVB and Signature as “systemic risks.”
The FDIC’s deposit insurance fund would be utilized to cover depositors, as many were uninsured because of the $250,000 cap on guaranteed deposits.
The central bank will put together a new bank term funding program (BTFP) with the goal of safeguarding companies that might be impacted by potential market instability in the aftermath of SVB’s collapse.
These loans will be extended to banks, credit unions, and savings associations for up to one year.
These businesses will be required to submit collateral, including Treasurys and mortgage-backed securities.
The Treasury Department will offer up to $25 billion from its Exchange Stabilization Fund in the event of potential losses.
“This action will bolster the capacity of the banking system to safeguard deposits and ensure the ongoing provision of money and credit to the economy,” the Fed said in a statement.
“The Federal Reserve is prepared to address any liquidity pressures that may arise.”
House Financial Services Committee chairman Patrick McHenry (R-NC) issued a statement on Sunday, calling it the “first Twitter-fueled bank run.”
“At this time, it is important to remain level-headed and look at the facts—not speculation—when assessing the right path forward,” said Chairman McHenry.
“I have confidence in our financial regulators and the protections already in place to ensure the safety and soundness of our financial system.”
Now that a plan has been installed to shield depositors from the downfall of SVB and Signature Bank, has a contagion effect been prevented?
First Republic Bank tanked on Monday as investors feared that the San Francisco-based institution could face similar capital and liquidity issues.
However, the bank confirmed in a statement on Sunday that its “capital and liquidity positions are very strong, and its capital remains well above the regulatory threshold for well-capitalized banks.”
As of Dec. 31, First Republic maintained approximately $213 billion in assets.
Shares plummeted about 66 percent in pre-market trading on Monday.
Financial markets are also waiting to see what will happen to SVB’s assets.
“Still to be determined is the fate of the assets of Silicon Valley Bank,” said Greg McBride, the chief financial analyst at Bankrate, in a note.
“Whether one buyer or multiple buyers emerge is still to be determined as of the moment.”
With $212 billion in assets, SVB was the largest U.S. bank failure since 2008, when Washington Mutual failed.
It was the second-largest U.S. bank collapse in history.