Silicon Valley Bank: Biden Says US Banking System Is Safe

  • By Natalie Sherman
  • Business reporter, New York

image source, Getty Images


Joe Biden spoke on Monday to reassure Americans that the banking system was safe

President Joe Biden has said the United States will do “whatever is necessary” to strengthen the banking system after a series of bank failures raised concerns about financial stability.

His comments came after the government said it would guarantee all deposits at Silicon Valley Bank and Signature Bank.

It is trying to prevent bank runs from spreading after SVB collapsed amid a rush of customer withdrawals.

Americans should “rest assured that our banking system is safe”, Mr Biden said.

People and companies who have money deposited with SVB will be able to access all their cash from Monday, he said.

Taxpayers will bear no losses from the move, which will be funded by fees regulators levy on banks, he said. The managers of the banks will be fired, he added.

Sir. Biden spoke early Monday when the failure of SVB – the country’s 16th largest bank and Signature raised concerns that it could trigger a financial crisis.

“Every American should feel confident that their deposits will be there if and when they need them,” President Biden said. “Also, let me assure you that we will not stop at this. We will do whatever is necessary.”

SVB – which specialized 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 came after SVB struggled to raise money to cover a loss from the sale of assets affected by higher interest rates. Word of the problems sent customers scrambling to withdraw money, leading to a cash crunch.

Authorities also said on Sunday that 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 bank run after SVB.

There are concerns that the failures, which followed the collapse of another bank, Silvergate Bank, last week, are a sign of trouble brewing for other firms.

US financial markets were broadly flat when trading opened on Monday.

But shares in many banks were under pressure. Shares of San Francisco-based First Republic bank fell about 70% on Monday as investors sold off shares worried it 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 assistance through a new Bank Term Funding Program that makes it easier for banks to borrow from it in a crisis.

Elsewhere, HSBC said it was buying SVB’s UK arm for £1, while authorities in Canada took temporary control of the assets of SVB’s branch in the country. The top banking regulator said it intended to seek permanent control.

Paul Ashworth, North American chief economist at Capital Economics, said the US authorities had “acted aggressively to prevent a contagion”.

“Rationally, this should be enough to stop any contagion from spreading and closing more banks, which can happen in an instant in the digital age. But contagion has always been more about irrational fear, so we want to stress that there no guarantee this will work,” he added.

I have spoken to people with money stuck in SVB at the weekend.

One founder told me that he had been constantly updating his online banking site in hopes that it would work.

Another said he was confident the government would step in but admitted he could have lost around 40% of the company’s cash overnight.

This statement has thus been welcomed by the depositors. But there are those who will raise eyebrows at this move.

SVB mainly bankrolled start-ups and venture capitalists in Silicon Valley – the tech elite. And these Silicon Valley elites tend to have more than a streak of libertarianism in their politics: the basic view that government is slow and too big.

Critics argue that it is with great irony that it is the government that has stepped in to save the day. Some will wonder if influential tech bros have been given preferential treatment: capitalism when it’s going well, socialism when it’s not.

That is why the statement is worded carefully so that taxpayers do not have to pay for this. Sir. Biden will now have to defend the measure – and assure members of his own party that it was the only way to guarantee depositors.

SVB started as a Californian bank in 1983 and expanded rapidly over the past decade. A crucial lender to early-stage companies in the technology sector, it was the banking partner for nearly half of US venture-backed technology and healthcare companies that listed on the stock markets last year.

The firm came under pressure last year as its clients increasingly drew on deposits as higher interest rates made it harder to raise new money through private fundraising or share sales.

In Silicon Valley, the fallout from the collapse has been widespread, as companies face questions about what it means for their finances.

Etsy and Roku were among the big companies that had money tied up in the bank.

“At Etsy, supporting our sellers is our highest priority, and we understand how important it is for these small businesses to be able to receive their money when they need it,” 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 pay sellers via our other payment partners within the next several business days and that we will be able to start processing those payments as soon as tomorrow, March 13.”

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