U.S. President Joe Biden spoke to the public at the White House on Monday, asserting that the country's banking system was "safe" despite the recent collapse of Silicon Valley Bank and Signature Bank.
The president praised his team for its "quick action" in the last few days to handle the issue in both banks. According to Biden, the steps taken by the federal government have helped businesses that were clients of these banks to "breathe easier" because they can operate normally.
Biden said these bank clients could rest assured because they would regain access to their money starting Monday. He also repeated previous statements by financial authorities that taxpayers would not bear the losses in the failures. Instead, the losses will be covered by the banks' deposit insurance funds.
"I want to have- rest assured they'll be protected, and they'll have access to their money as of today. That includes small businesses across the country that bank there and need to make payroll, pay their bills, and stay open for business."
Joe Biden, President of the United States
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Authorities also aim to hold managers at both banks accountable for the collapses. Biden confirmed that authorities had removed senior management at SVB and Signature and took over the insurance process.
"Americans can rest assured that our banking system is safe. Your deposits are safe," Biden said. "Let me also assure you we will not stop at this. We will do whatever is needed on top of all this."
The Federal Deposit Insurance Corporation (FDIC) took control of SVB on Friday and Signature on Sunday. The Treasury Department and Federal Reserve also worked together to develop measures to cushion the shutdowns' impact.
In his speech, Biden also addressed questions regarding the reasons for SVB and Signature's failures. Some analysts said their exposures to crypto partially contributed to their demises, given the volatility in the nascent industry and the macroeconomic environment. However, Biden emphasized the importance of getting the "full accounting" of the actual incidents to prevent a similar thing from happening in the future.
Biden promised that he would demand Congress and banking authorities strengthen regulations for banks. He referred to several laws the Obama-Biden administration introduced, including the Dodd-Frank law, which prevents banks from conducting excessive risk-taking activities.
The government's actions regarding SVB and Signature are met with mixed reactions. Some said that authorities were not in "constant dialogue" with the banks' management when developing the action plan, unlike the financial crisis in 2008.
On the other hand, some applauded the administration for stepping in. Mike Molinet, co-founder and COO of tech startup Branch, said the government made the "right move" as a widespread panic of clients at other banks would lead to more bank runs.
Economic stabilization
Financial authorities acknowledged the possibility of a spillover effect from the failed banks and took action to assure investors. For instance, the Fed launched a lending facility that would ease any liquidity issue experienced by the collapsed banks to further help stabilize the economy.
The measures taken by the authorities to restore banking clients' confidence in the system were expected to "reduce depositor runs on what are solvent institutions."
The Treasury Department has been monitoring the deposit flows following SVB and Signature's closures. A senior Treasury official said the agency had seen signs of a slowdown in deposit outflows from small and medium-sized lenders.
The federal agency said these early reports did not guarantee that risks had disappeared. However, it signals that banking clients are less worried about the safety of their deposits.
"The thing we were targeting was uninsured depositors feeling as if they weren't protected," the official added. "The scale and the breadth of what we did has sent that message."
Officials are also monitoring other banks that are at risk of experiencing a similar issue with the two insolvent banks. First Republic, which analysts predicted to be the next banking institution to fall, managed to secure additional funding from JPMorgan Chase to boost its liquidity in case of a large volume of customer withdrawals.