The Biden administration said Sunday that it would guarantee all deposits at the now-shuttered Silicon Valley Bank but insisted the move was not a taxpayer-funded bailout, while regulators closed a second institution, New York City’s Signature Bank, amid fears of an unfolding economic crisis.
Some business leaders warned that it might be just the beginning of a national reckoning with institutions that value left-wing politics over sound investing.
Underscoring the urgency of the situation, President Biden said he will address the nation Monday morning “on how we will maintain a resilient banking system to protect our historic economic recovery.”
In a statement, the president said late Sunday night that he is pleased that his top advisers and bank regulators reached a “prompt solution” on the two shuttered banks “that protects American workers and small businesses, and keeps our financial system safe.”
Treasury Secretary Janet Yellen seemed earlier Sunday to rule out a bailout of the California-based bank but said the government would work around the clock to find solutions ahead of Monday morning’s opening bell on Wall Street. Customers include household brands such as Roku and Etsy.
Later Sunday, Ms. Yellen, Federal Reserve Chair Jerome Powell and Federal Deposit Insurance Corp. Chairman Martin J. Gruenberg released a joint statement saying they had reached a “resolution” that would allow all depositors at SVB to access all their money Monday morning.
SEE ALSO: Biden defends ‘safe’ banking system amid biggest collapses since 2008
“No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” the regulators said.
Mr. Biden reiterated that claim in his statement, saying taxpayer dollars are not at risk.
“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Mr. Biden said. “I am firmly committed to holding those responsible for this mess fully accountable and to continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.”
Officials said they were taking similar actions to protect depositors at New York City’s Signature Bank, which was closed by its chartering authority Sunday. The closing of a second major bank in just 48 hours will add to fears of broader, systemic issues across the U.S. economy.
The dramatic developments unfolded after regulators effectively shuttered the bank Friday and took control of its deposits, marking the second-biggest bank failure in U.S. history and a seismic event that immediately raised the specter of the 2008 economic crisis that hit its climax with the rapid collapse of leading financial institutions such as Lehman Bros.
The 2008 crisis led directly to a massive and wildly controversial $700 billion federal bailout program. Ms. Yellen said Sunday morning that that won’t happen this time.
SEE ALSO: White House says Silicon Valley Bank failure won’t lead to repeat of 2008
“Let me be clear that during the financial crisis, there were investors and owners of systemic large banks that were bailed out. … The reforms that have been put in place means that we’re not going to do that again,” she told the CBS News program “Face the Nation.” “But we are concerned about depositors and are focused on trying to meet their needs.”
‘Not being bailed out’
About $175 billion in SVB assets are now under regulators’ control. SVB deposits of up to $250,000 are covered by the FDIC. Initially, it was unclear what might happen to customers who have funds over that limit invested with the bank, including many major Silicon Valley technology firms.
The joint statement Sunday from financial regulators seemingly answers that question, though they stressed that “shareholders and certain unsecured debt-holders will not be protected.”
Critics are sure to cast the announcement as a bailout by another name, but administration officials were adamant that the federal backstop on the deposits did not amount to a bailout.
“This situation is not 2008. There are a lot of reforms that have been put in place, and we are trying to help depositors of institutions. The banks’ equity and bondholders are being wiped out,” an administration official told reporters on a conference call late Sunday. “They took a risk as the owners of these facilities, and they will take the losses. What is being helped are the depositors. So, in that sense, and I think in the correct sense, the firms are not being bailed out. The depositors are being protected.”
SVB was the nation’s 16th-largest bank. Its demise is fueling fears that other banks could soon fail as they grapple with skyrocketing interest rates that have put significant pressure on their operations.
Ms. Yellen stressed that she believes “problems of the tech sector aren’t at the heart of the problems of this bank,” and she offered seemingly ironclad assurances that a broader collapse isn’t on the horizon.
“The American banking system is really safe and well-capitalized,” she said. “It’s resilient.”
Ms. Yellen, Mr. Powell and Mr. Gruenberg echoed those assurances in their statement late Sunday.
“The U.S. banking system remains resilient and on a solid foundation, in large part due to reforms that were made after the financial crisis that ensured better safeguards for the banking industry,” they said. “Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”
Some critics say the Biden administration is missing one of the key factors behind SVB‘s collapse and the broader contagion that has infected the American economy.
Bernie Marcus, a co-founder of Home Depot, said the SVB collapse should serve as a wake-up call for Americans entrusting their money to woke financial institutions.
Mr. Marcus cited SVB‘s focus on climate change and other political issues as part of its investment strategy — the “environmental, social, corporate governance,” or ESG, philosophy. That strategy factors environmental issues such as climate change, social matters such as diversity and inclusion, and other issues into its overall business strategy.
Some companies, Mr. Marcus and other critics say, value those political issues over the financial well-being of the company and that the security of customers, clients or investors may not necessarily be the chief priority.
“Maybe the American people will finally wake up and understand that we’re living in very tough times — that, in fact, a recession may have already started,” Mr. Marcus said on Fox News.
“I think that the system [and] the administration has pushed many of these banks into [being] more concerned about global warming than they do about shareholder return. And these banks are badly run because everybody is focused on diversity and all of the woke issues and not concentrating on the one thing they should, which is shareholder returns,” he said.
Containing the damage
The SVB collapse will surely fuel a greater national debate over the role politics and social policies should play in investing. For the federal government, more immediate problems are on the horizon.
The SVB slide began when many of its customers, mostly technology companies that needed immediate cash as they struggled to get financing, started withdrawing their deposits. The bank had to sell bonds at a loss to cover those withdrawals, setting off a chain reaction.
The FDIC by law will cover deposits up to $250,000. The federal government moved to assure access to all funds beyond that limit after an apparently unsuccessful push to find another buyer for SVB.
Before the announcement Sunday evening, regulators faced significant pressure from congressional leaders who urged the administration to quickly lay out a plan.
“They do have the tools to handle the current situation, they do know the seriousness of this and they are working to try to come forward with some announcement before the markets open,” House Speaker Kevin McCarthy told Fox News’ “Sunday Morning Futures” program.
The California Republican expressed hope that another institution would purchase SVB.
“I think that would be the best outcome to move forward and cool the markets and let people understand that we can move forward in the right manner,” he said.
With no buyers, the government had few good options.
Earlier Sunday, some lawmakers said the administration should make an immediate fix by guaranteeing all depositors to prevent a broader run on banks, or the collapse of major companies that suddenly can’t pay their bills.
“First, the principle needs to be that all depositors will be protected and have full access to their accounts Monday morning,” Rep. Ro Khanna, California Democrat, told “Face the Nation.”
“Here’s what I’m hearing from people in my constituency: They are getting notes to pull out of regional banks, and all of this will be consolidated in the top four banks. We don’t want that as a nation, especially if you’re progressive,” he said. “The other thing is the payroll companies that are involved, some of them have 400,000 folks. They’re not going to be able to meet payroll if they don’t have access to the deposits.”
Other Democrats suggested that there may be a “moral hazard” to reimbursing above that $250,000 FDIC limit.
“There’s generally been a feeling that, you know, the people responsible, the shareholders of the bank ought to lose their money. Depositors have been a different circumstance, but there are questions around moral hazard,” Sen. Mark R. Warner, Virginia Democrat and a member of the Senate Banking Committee, told ABC’s “This Week” program.
Meanwhile, the effects of the SVB collapse were already being felt. The online shop Etsy reportedly had to delay payments to some sellers.
“We wanted to let you know that there is a delay with your deposit that was scheduled for today,” the company said in an email to some customers, according to NBC News.
“We know that you count on us to help run your business and we understand how important it is for you to receive your funds when you need them,” the email said. “Please know that our teams are working hard to resolve this issue and send you your funds as quickly as possible.”
The company told NBC that it expects to pay its sellers within the next several business days.
• Ramsey Touchberry, Joseph Clark and Jeff Mordock contributed to this story, which is based in part on wire service reports.