President Biden intervened Monday in the crisis sparked by the sudden collapse of Silicon Valley Bank, after days of pressure to reassure consumers that the second-largest bank failure in U.S. history would not cause a domino effect.
Silicon Valley Bank went under in just 48 hours last week after customers panicked over the bank’s balance sheets.
Studiously avoiding use of the term "bailout," Biden declared Monday that the "banking system is safe" while pledging to make all depositors at Silicon Valley Bank and New York-based Signature Bank whole at no cost to taxpayers.
Biden was short on detail as to how he would achieve this, but he said it would be paid for with fees the banks pay into federal deposit insurance.
While pledging to help depositors, Biden said investors took a risk and they have to deal with the consequences themselves: “that's how capitalism works," he declared.
Biden also said the managers of SVB and Signature Bank, which failed over the weekend, would be "fired" after both banks were acquired by the Federal Deposit Insurance Corporation (FDIC).
The president's tone showed a sensitivity to lingering populist sentiment toward Wall Street years after the Great Recession that wiped out many Americans financially.
The government bailout of major banks deemed “too big to fail” during the 2008 financial crisis led to popular anger among many Americans who felt the banks were to blame for causing the downturn with reckless speculation.
The message from Biden's Treasury Secretary, Janet Yellen, was the same in a CBS interview Sunday: this is not a repeat of the 2008 bank bailout.
"Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out, and the reforms that have been put in place means that we're not going to do that again," Yellen told CBS' Face the Nation. "But we are concerned about depositors and are focused on trying to meet their needs."
Some have argued Biden's efforts are still equivalent to a bailout because most of Silicon Valley Bank's customers were venture capitalists with deposits larger than the federally insured amount of $250,000. Others have questioned Biden's claim that taxpayers won't pay a price.
The idea this won't be borne by taxpayers is also a joke. The inflated fees at every regional bank will be paid by taxpaying small banks and their taxpaying consumers. Those inflated fees are not incidental: they're what's paying for the expanded FDIC insurance.
— J.D. Vance (@JDVance1) March 13, 2023
The Federal Reserve also announced an emergency lending program Sunday to provide banks with liquidity in case they need it.