AIn view of the turbulence in the banking sector, US President Joe Biden is trying to ease the situation. “I think it’s going to be a while before things settle down, but I don’t see anything on the horizon that’s about to explode,” Biden said on Friday during a visit to neighboring Canada. He understands that there is uneasiness. “These mid-tier banks need to be able to survive, and I think they will,” Biden said. He indicated that the US government would take further action if necessary.
The trigger for the banking crisis that broke out in early March was the liquidation of the US financial group Silvergate Capital, which is geared towards the crypto industry. A few days later, the US lender Silicon Valley Bank, which specializes in start-up financing, was placed under the control of the US deposit insurance FDIC and closed. Other small financial institutions also stumbled, the Signature Bank collapsed completely. The emergency takeover of the Swiss company Credit Suisse by UBS also made international headlines.
Account holders withdraw record sums from small US banks
In the case of Silicon Valley and Signature Bank, the US government guaranteed deposits in excess of the $250,000 legal guarantee limit. US Treasury Secretary Janet Yellen has already signaled that this is possible even if more banks should fail. Biden made a similar statement. If there is more instability, the FDIC could once again act as it has already done, he said.
After the collapse of Silicon Valley Bank, account holders massively withdrew funds from small US banks last week. According to data from the US Federal Reserve, total deposits fell to $5.46 trillion from the previous $5.58 trillion. That was the largest weekly drop to date in absolute terms and the largest percentage drop in 16 years.
Small banks are those financial institutions that are not among the 25 largest US banks. At the same time, however, these institutes stocked up on even larger amounts of cash by taking out loans – obviously in order to be able to service account withdrawals. At the big banks, deposits rose to $10.74 trillion from $10.67 trillion earlier in the week.