March 13, 2023, 1:52 PM
March 13, 2023, 1:52 PM
President Joe Biden tried to reassure Americans on Monday by stating that the banking system is “safedespite the bankruptcy or closure of three banks in less than a week and the fear of contagion that caused the stock markets to fall in Europe.
“Americans can trust that the banking system is safe. Their deposits will be there (available) when they need them,” Biden said in televised remarks from the White House after the bankruptcy of Silicon Valley Bank (SVB).
Little known to the general public, SVB specialized in financing start-ups and had become the 16th America’s largest bank by assets: at the end of 2022 it had 209,000 million in assets and approximately 175,400 million in deposits.
On Sunday night, the United States federal authorities intervened to ensure that savers have access to their funds in BLS. In addition, the regulators took over a second banking entity: the SignatureBank.
But there are more US banks under pressure. The actions of First Republic BankSan Francisco-based slumped about 75%, while Ohio-based KeyCorp lost 28% and Zion Bancorporation 30%.
In the United States, the main stock market indices were oscillating between red and green, but in Europe, the Paris, Frankfurt and Milan stock markets suffered the blow, with falls of around 3%.
Stock market in New York / Photo: AFP
“Far from calming the nerves, the fear of contagion has increased even more, since the investors they dump risky assets across Europe,” City Index analyst Fiona Cincotta told AFP.
“Investors are targeting Spanish and Italian banks, which suggests that these are seen as the weakest links,” he added.
Most financial market observers are, however, optimistic and doubt that a situation comparable to the 2008 financial crisis will occur.
Yet many perceive a rising risk of recessionespecially given the expectation that central banks will continue to raise interest rates.
Everyone is looking forward to Thursday, when the European Central Bank will meet to probably raise rates.
Biden is in favor of reacting “immediately.”
In a joint statement, the US Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Treasury Department assured on Sunday that SVB depositors would have access to “all their money” starting Monday.
And so will “full access” to those who hold their money at Signature Bank, a New York-based regional-sized lender with significant cryptocurrency exposure that was shuttered on Sunday after its share price plunged.
The Fed also announced that it would make additional funds available to banks to help them meet the needs of account holders.
According to President Biden, the government will do everything possible so that the savers get their money back and, in any case, “taxpayers will not bear the losses.” And he insisted that he wants to strengthen the regulations of the sector.
“I’m going to ask Congress and banking regulators to tighten the rules for banks so it’s more unlikely that this type of bank failure will happen again,” he explained, blaming Republicans for bringing it down during Donald Trump’s tenure. the safeguards introduced after the financial collapse of 2008.
The Democratic president wants those responsible for the bankruptcy “to account”, which is why he avoided a bank bailout over the weekend.
“The management of these banks will be fired.” In the president’s opinion, once the government takes over, as is the case at SBV, “the people who run the bank should no longer work for it.”
Biden stressed that the investors who bought SVB took a risk and must bear the consequences because “this is how capitalism works.”
In the United Kingdom, banking giant HSBC bought SVB’s UK division for just £1 ($1.2) in a bailout deal overseen by the Bank of England and the government.
The French and German authorities, meanwhile, see no risks to their financial systems.
Oxford Economics does not see significant consequences for the economy or “systemic risks for the banking sector”, but foresees a probable “mild recession” in the second half of 2023 in the United States.
For now, there are three banks affected by the banking crisis in a context of aggressive rise in interest rates by the Fed to contain inflation: Silicon Valley Bank, the Signature Bank and Silvergate Bankhighly exposed to cryptocurrencies and whose liquidation was announced last Wednesday.
