The President of the United States, Joe Biden, sent a message of reassurance to Americans this Monday by stressing that the country’s banking system “is safe” and assured clients of Silicon Valley Bank and Signature Bank that they will have their deposits.
He also indicated that the managers of these banks will be dismissed and their shareholders will not have special protection.
“Your deposits will be there when you need them,” he said in a brief speech to reporters a day after regulators launched a plan to protect Silicon Valley Bank (SVB) deposits after its collapse and closed another banking institution, the Signature Bank, under the same parameters.
“Americans can be confident that the banking system is secure. (…) In my Administration, nothing and no one is above the law,” stressed the president, assuring that the taxpayer will not assume any loss.
The California-based SVB announced last Wednesday that it was going to seek a capital increase to try to deal with financial difficulties that had led it to dump investments worth about $21 billion, with a loss of about 1,800 million.
That announcement led many clients to withdraw their funds, after which regulators had to close the bank on Friday for lack of liquidity. The company’s stock price subsequently plunged, which in turn affected the banking sector in the United States and other countries..
The Treasury Department, the Federal Reserve (Fed) and the Federal Deposit Insurance Corporation (FDIC) announced Sunday that customers they will have access starting this Monday to all the money deposited in the SVB and promised a similar plan for Signature Bank.
Biden advanced that the managers of these banks “will be fired” and stressed, as the regulators had pointed out the day before, that shareholders will not be protected.
“If the FDIC takes over the bank, the people who run it should no longer work there. (…) Investors will not be protected. They knowingly took a risk and when the risk fails investors lose their money. This is how capitalism works,” he said.
His appearance tried to dispel the ghosts of the 2008 financial crisis.
“We must reduce the risk of this happening again,” stressed the president, recalling that under the administration of Barack Obama, also a Democrat (2009-2017), “tough demands” were put in place on the banking sector that fell back in that of Republican Donald Trump (2017-2021).
Thus, He said he will ask Congress and regulators to tighten the rules to reduce the chances from this type of collapse happening again and to protect jobs and small businesses.
“The bottom line is this: Our banking system is secure. Your deposits are safe. We will do what we have to do,” Biden added, making it clear that the money to assume the losses of the SVB and Signature Bank will come from the fees that banks pay into the Deposit Guarantee Fund.
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