- By Natalie Sherman
- Business Reporter, New York
President Joe Biden said the US would do “whatever it takes” to prop up the banking system after a series of bank failures raised financial stability concerns.
His comments came after the government announced it would guarantee all deposits at Silicon Valley Bank and Signature Bank.
She is trying to prevent the bank runs from spreading after SVB collapsed amid an onslaught of customer withdrawals.
Americans should “be assured that our banking system is secure,” Biden said.
People and businesses who have money deposited with the SVB will be able to access all their cash from Monday, he said.
Taxpayers will not suffer any losses from the move, which will be funded by fees regulators charge banks, he said. Bank leaders would be fired, he added.
Mr Biden was speaking early Monday as the failure of SVB – the country’s 16th largest bank – and Signature raised concerns it could trigger a financial crisis.
“Every American should be confident that their deposits are there when they need them,” President Biden said. “Let me also assure you that we will not stop there. We will do whatever is necessary.”
SVB, which specialized in lending to tech companies, was shut down on Friday by regulators who seized its assets. It was the largest bankruptcy by a US bank since the 2008 financial crisis.
It came after SVB struggled to raise money to offset a loss from the sale of assets hit by higher interest rates. News of the problems caused customers to scramble to withdraw funds, leading to a liquidity crisis.
Authorities also said Sunday they had taken over Signature Bank of New York, which had many clients involved in crypto and was seen as the institution most vulnerable to a similar post-SVB bankrun.
There is concern that the bankruptcies that followed the collapse of another bank, Silvergate Bank, last week are a sign of trouble brewing for other businesses.
US financial markets were roughly flat when trading opened on Monday.
But the shares of many banks were under pressure. Shares in San Francisco-based First Republic Bank plunged about 70% on Monday as investors sold shares amid fears this could be next.
As part of their efforts to restore confidence, regulators also unveiled a new way to give banks access to emergency funds.
The Federal Reserve said it would offer support through a new Bank Term Funding Program to make it easier for banks to borrow from it in a crisis.
Elsewhere, HSBC announced it was buying SVB’s UK arm for £1 while authorities in Canada temporarily took control of the assets of SVB’s branch in the country. The top banking regulator said it intends to seek permanent control.
Paul Ashworth, chief economist for North America at Capital Economics, said US authorities “acted aggressively to prevent contagion from developing”.
“Rationally, this should be enough to prevent contagion from spreading and shutting down more banks, which can happen in a jiffy in the digital age. But contagion has always been more about irrational fear, so we want to stress that there’s no guarantee this will work,” he added.
I spoke to people over the weekend whose money is in the SVB.
One founder told me he kept updating his online banking site hoping it might work.
Another said he was confident the government would step in but admitted he may have lost about 40% of the company’s cash overnight.
So this statement was welcomed by depositors. But there are those who will raise eyebrows at this step.
The SVB has mainly signed startups and venture capitalists in Silicon Valley – the tech elite. And these Silicon Valley elites tend to have more than a touch of libertarianism in their politics: the default view is that government is slow and too big.
Critics argue that, with great irony, it is the government that has stepped in to save the day. Some will wonder if influential tech brothers have been given preferential treatment: capitalism when things are going well, socialism when things aren’t.
That is why the declaration is carefully worded that the taxpayers will not pay for it. Mr Biden must now defend the move – and reassure members of his own party that the depositors’ guarantee was the only way forward.
SVB began as a California bank in 1983 and has expanded rapidly over the past decade. A major lender to early-stage tech companies, it has been the banking partner for nearly half of U.S. venture-backed tech and healthcare companies that have gone public over the past year.
The company came under pressure last year as its customers turned to deposits because higher interest rates made it harder to raise new money through private fundraising or stock sales.
In Silicon Valley, the reverberations of the collapse have been widespread as companies grapple with what it means for their finances.
Etsy and Roku were among the notable companies that had money tied up in the bank.
“At Etsy, supporting our sellers is our top priority, and we understand how important it is for these small businesses to get their funds when they need them,” an Etsy spokesperson said Sunday.
“We recently experienced a delay in issuing payments to some vendors related to the unexpected collapse of Silicon Valley Bank. Our teams have been working around the clock to implement a solution.
“We expect to be paying sellers through our other payment partners within the next few business days and we expect to be able to start processing those payments as early as tomorrow, March 13.”