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Biden makes remarks on the United States banking system after the collapse of Silicon Valley Bank, March 13. Chris Kleponis - Pool via CNP

Biden to seek tougher banking regulations, as managers of Silicon Valley Bank are to be fired

The UK arm of SVB has been sold to HSBC for a nominal £1 in a rescue deal announced this morning.

LAST UPDATE | 13 Mar 2023

US PRESIDENT JOE today said he will seek tougher banking regulations in the wake of Silicon Valley Bank’s collapse and said the bank’s managers will be fired.

“I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again,” Biden said in televised remarks from the White House, adding that “the management of these banks will be fired.”

Biden has also assured the American public that “no losses will be borne by the taxpayers”. 

“The money will come from the fees that banks pay into the deposit insurance,” he vowed. 

Biden challenged Congress to enact more stringent regulations, saying that “tough” safeguards brought in after the 2008 financial collapse had been undone under his Republican predecessor Donald Trump.

He made clear he expects the consequences to fall on the shoulders of those responsible and that the government’s rapid response over the weekend was not a bank bailout, as happened in 2008.

“We must get the full accounting of what happened and why, so those responsible can be held accountable,” he said.

Not only will taxpayers not be liable for covering the deposits, but “the management of these banks will be fired,” he said.

Once a bank is taken over by the government, he said, “the people running the bank should not work there anymore.”

Biden stressed that investors who bought into SVB were not getting bailed out.

“They knowingly took a risk and when the risks didn’t pay off, investors lose their money. That’s how capitalism works,” he said.

 US authorities have  confirmed sweeping measures to rescue depositors’ money in full from failed Silicon Valley Bank and to promise other institutions help in meeting customers’ needs, as they announced a second tech-friendly bank had been closed by regulators.

It comes as the UK arm of Silicon Valley Bank has been sold to HSBC for a nominal £1 (€1.13) in a rescue deal, the UK government and HSBC announced today.

With the two bank failures rattling nerves, earlier today Biden vowed to hold “fully accountable” the people responsible for “this mess”. 

“The American people and American businesses can have confidence that their bank deposits will be there when they need them,” Biden said.

In a joint statement, financial agencies including the US Treasury said SVB depositors would have access to “all of their money” starting today and that American taxpayers will not have to foot the bill.

The “core goal” of the moves was to reassure bank customers they would have their money “to meet payroll to keep their businesses operating, and to make sure households are able to pay the rent or the mortgage or any of their other bills,” US Federal Reserve officials told reporters last night.

The Fed, the Federal Deposit Insurance Corporation (FDIC) and Treasury said in their statement that depositors in Signature Bank, a New York-based regional-size lender with significant cryptocurrency exposure which was shuttered on Sunday after its stock price tanked, would also be “made whole.”

And in a potentially major development, the Fed announced it would make extra funding available to banks to help them meet the needs of depositors, which would include withdrawals.

“We are taking decisive actions to protect the US economy by strengthening public confidence in our banking system,” the agencies said.

“The US banking system remains resilient and on a solid foundation,” due in large part to reforms and banking industry safeguards undertaken after the financial crisis of 2008, they added.

“Those reforms combined with today’s actions demonstrate our commitment to take the necessary steps to ensure that depositors’ savings remain safe.”

No ‘significant risk’ to Europe

The EU’s economy commissioner today said the collapse of SVB does not pose a serious threat to Europe, amid investors’ fears of contagion.

“The possibility of indirect impact is something that we have to monitor but, at the moment, we don’t see it as a significant risk,” Paolo Gentiloni told reporters in Brussels as European stock were down heavily in afternoon trading.

Avoiding ‘contagion’

The FDIC guarantees deposits – but only up to $250,000 per client and per bank.

Federal banking law, however, would allow the FDIC to protect uninsured deposits if a failure to do so would pose systemic risks, the Washington Post reported.

Regulators on Friday took control of SVB – a key lender to startups across the United States since the 1980s – after a huge run on deposits left the medium-sized bank unable to stay afloat on its own.

Hours before last night’s joint statement, Treasury Secretary Janet Yellen said the government wants to avoid financial “contagion” from the SVB implosion, as it ruled out a bailout.

With the bank’s future, and its billions in deposits up in the air, officials from the three agencies raced to craft a solution just hours before financial markets opened in Asia, and to avert a potential financial panic.

Yellen told CBS that the US government wanted “to make sure that the troubles that exist at one bank don’t create contagion to others that are sound.”

HSBC deal

The sale of the UK arm of failed US lender Silicon Valley Bank to HSBC for a nominal fee comes after panic was sparked in Britain in the technology and life science sectors.

The deal is overseen by the Bank of England and the UK Treasury.

“Silicon Valley Bank (UK) Ltd has today been sold to HSBC,” said a Treasury statement after urgent talks over the weekend.

“This transaction has been facilitated by the Bank of England, in consultation with the Treasury, using powers granted by the Banking Act 2009.”

UK finance minister Jeremy Hunt added that no government cash was involved, while all customer deposits have been safeguarded.

“This (deal) ensures customer deposits are protected and can bank as normal, with no taxpayer support.

“I am pleased we have reached a resolution in such short order,” added Hunt.

HSBC has agreed to pay just £1 for the business, the bank giant added in a separate statement.

The Asia-focused lender added that SVB UK had loans of about £5.5 billion and deposits of around £6.7 billion.

“This acquisition makes excellent strategic sense for our business in the UK,” said HSBC chief executive Noel Quinn.

He added that SVB UK’s customers “can continue to bank as usual” and will be “safe in the knowledge that their deposits are backed by the strength, safety and security of HSBC”.

No bailout

Since Friday, there have been calls from the tech and finance sectors for a bailout.

Yellen said reforms made after the 2008 financial crisis meant the government was not considering this option for SVB.

“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,” she said.

In their joint statement on the latest bank woes and efforts to protect depositors of SBV and Signature, the agencies stressed shareholders and certain unsecured debtholders will not be protected.

And Fed officials explained to reporters: “Investors in those two banks will lose everything. Senior management of those two banks will bear losses and be removed.”

Following the 2008 failure of Lehman Brothers and the ensuing financial meltdown, US regulators required major banks to hold additional capital in case of trouble.

US and European authorities also organize regular “stress tests” designed to uncover vulnerabilities at the largest banks.

Little known to the general public, SVB specialized in financing startups and had become the 16th largest US bank by assets: at the end of 2022, it had $209 billion in assets and approximately $175.4 billion in deposits.

The company previously boasted that “nearly half” of technology and life science companies that had US funding banked with them, leading many to worry about the possible ripple effects of its collapse.

© AFP 2023

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