A late-stage test for the Biden administration has come in the form of banking turmoil that could ripple out into the economic world at large.
In a televised address about the recent crisis involving the emergency federal seizure of Silicon Valley Bank and Signature bank, President Biden reassured the American people that the banking system is still secure; and measures will be taken to make sure minimal blowback will be felt by the public as a whole.
In particular, depositors with Silicon Valley banks were given a guarantee beyond the standard $250,000 in insured deposits via the deposits insurance fund, a $100 billion dollar facility funded by premiums that individual banks pay to the federal deposit insurance corporation. This move provides a safety net to the two failing banks and the economic system as a whole, without the government having to step in and, essentially, provide a bailout.
Biden also vowed to fire the managers of the banks for their irresponsible actions, and investors will have to take a hit. “They knowingly took a risk, and when the risk didn’t pay off, his adjusters lost their money. That’s how capitalism works.”
Biden also vowed stronger regulations, which some may interpret as a hint that a second look at the Dodd-Frank act (which put a cap on the number of assets a bank could have before federal oversight and stricter guidelines in terms of loans/mortgages were applied), running counter to the Trump administration’s easing of these restrictions. Of note, the Dodd-Frank Act was in response to another banking crisis: 2008’s recession and housing crisis.
Although both democrats and republicans have long agreed in their critique of Silicon Valley Bank, Biden faces a divided congress which may make new rules and regulations a hard sell.
Despite the lightning-fast actions of Biden’s administration, avoiding an outright collapse, small ripples are already being felt in the global marketplace, catabolizing the tenuous structures of numerous global players. Namely, as of Wednesday, Credit Suisse needed numerous emergency loan offers to avoid its own failure, highlighting its decades-long bout with vulnerabilities, instabilities, and scandals.
The white house will need to tread carefully in the coming months to avoid relying on the American taxpayer, creating an opening for censure by the GOP.