Biden offers assurances after US banks collapse

US President Joe Biden has reassured Americans that they can trust the country’s banking system and there will be no financial crisis despite the collapse of two major banks in the United States. During a news conference at the White House, Biden said he will hold those responsible accountable, and regulators will ensure better oversight and regulation of larger banks. He also promised that taxpayers will not bear any losses. The Silicon Valley Bank (SVB) and Signature Bank failed, with the former experiencing a bank run. Biden assured the public that customers of both banks would be protected and have access to their funds.

The US Department of the Treasury, the Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve have guaranteed deposits in both banks, set up a facility to provide emergency funds, and made it easier for banks to borrow from the Federal Reserve in emergencies. The actions are intended to ensure the US banking system continues to protect deposits and provide access to credit to households and businesses that promote strong and sustainable economic growth. The Biden administration worked with regulators over the weekend to take these measures, which included guaranteeing deposits in both banks.

The announcement by the US government did not reassure investors globally, with the STOXX banking index in Europe falling by 5.8% on Monday, while Commerzbank in Germany fell as much as 12.7%, and Credit Suisse hit a new record low after falling by over 15%. However, the market started to recover after opening lower. Meanwhile, the UK subsidiary of SVB was sold to HSBC for $8.1bn to protect the deposits of the country’s leading tech companies.

President Biden stressed that he wants Congress and banking regulators to strengthen the rules for banks to make it less likely for this kind of bank failure to occur again and to protect American jobs and small businesses. Biden added that he will ask for a full accounting of what happened and reduce the risk of such an event happening again. He confirmed that the managers of the failed banks will be sacked and investors will lose money. However, political polarisation in Congress makes passing any legislation difficult.

The International Monetary Fund (IMF) welcomed the decisive US action to stem systemic banking system risks. The IMF is closely monitoring the situation for global implications. IMF staff is following the evolving situation closely and assessing potential global financial stability implications.