March 30, 2023

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Silicon Valley Bank: Biden says the US banking system is safe

  • Written by Natalie Sherman
  • Business Reporter, New York

image source, Getty Images

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

President Joe Biden said the United States would do “whatever is needed” to prop up the banking system after a string of bank failures raised concerns about financial stability.

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

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

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

He said that people and companies who have funds on deposit with SVB will be able to access all their funds from Monday.

He said taxpayers would not incur any losses from the move, which would be funded by regulators of fees imposed on banks. He added that bank leaders would be expelled.

Biden spoke early Monday, as the failure of SVB — the nation’s 16th bank — and Signature raised fears it could lead to a financial crisis.

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

SVB – which specializes 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 financial crisis of 2008.

This came after SVB was scrambling to raise funds to bridge a loss from selling assets affected by high interest rates. Word of the problems led to customers racing to withdraw money leading to a cash crunch.

Also on Sunday, authorities said they had taken over Signature Bank of New York, which had several clients involved in cryptocurrencies and was seen as the institution most likely to be involved in similar banking operations after the SVB.

There is concern that the failures, which come after the collapse of another bank, Silvergate Bank, last week, are a sign of problems brewing for other companies.

US financial markets were almost flat as they opened trading on Monday.

But the shares of many banks have come under pressure. Shares in First Republic Bank, which is based in San Francisco, fell nearly 70% on Monday, as investors sold shares, worried what might be next.

And as part of their moves to restore confidence, regulators also unveiled a new way to give banks access to emergency funds.

The Fed said it would provide assistance through a new term bank financing program, making 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 temporarily took control of the assets of the SVB subsidiary in the country. The largest banking regulator has said it intends to seek permanent control.

Paul Ashworth, chief North America economist at Capital Economics, said US authorities “acted aggressively to prevent the spread of infection”.

“Logically speaking, this should be enough to prevent any infection from spreading and closing more banks, which can happen in the blink of an eye in the digital age. But infection has always been about irrational fear, so we maintain that there is no guarantee,” he added. This will work.”

I’ve talked to people with money stuck in SVB over the weekend.

One of the founders told me that he has been constantly updating his online banking page, hoping it will work.

Another said he was confident the government would step in, but admitted he may have lost about 40% of the company’s money overnight.

Depositors welcomed this statement. But there are those who will raise eyebrows in this step.

SVB was mainly financing startups and Silicon Valley venture capitalists – the tech elite. And those Silicon Valley elites tend to have more than a streak of libertarianism in their politics: the standard view is that government is too slow and too big.

Ironically, critics argue, it was the government that stepped in to save the day. Some will wonder if the techno-influencers have been given preferential treatment: capitalism when things go well, socialism when they don’t.

That is why the statement was carefully worded that taxpayers would not pay for it. Biden will now have to defend the move – and reassure members of his party that a depositor guarantee is the only way.

SVB began as a bank in California in 1983 and has expanded rapidly over the past decade. It was an important lender to early-stage companies in the technology sector, and was the banking partner for nearly half of the technology and healthcare-backed U.S. companies that listed on stock markets last year.

The company came under pressure last year, as its customers were increasingly dependent on deposits because high interest rates made it difficult to bring in new money through private fundraising or stock sales.

In Silicon Valley, echoes of the crash have spread far and wide as companies face questions about what it means for their finances.

Etsy and Roku were among the big-name companies with 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 be able to receive their money when they need it,” an Etsy spokesperson said Sunday.

“We recently experienced delays in issuing payments to some vendors due to the unexpected collapse of a Silicon Valley bank. Our teams are working around the clock to implement a solution.

“We expect to be paying sellers via our other payment partners within the next several business days and that we will be able to start processing these payments as soon as tomorrow, March 13th.”

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