The American banking system threatened by severe turbulence. After the bankruptcy of Silicon Valley Bank and Signature Bank, US President Joe Biden spoke on Monday to reassure Americans. “Americans can be confident,” he said from the White House, promising that the country’s banking system was “sound.”
“Your deposits will be available when you need them,” he continued. He also promised that US taxpayers would not be liable for losses from a bank failure. Concretely, they should not be called upon to deal with the turbulence of the moment.
“We will not stop there” and “we will do whatever is necessary”, he finally assured. In this short speech, Joe Biden also made it known that he would ask Congress to legislate to “strengthen” banking regulation, toughened after the Lehman Brothers debacle in 2008 but then lightened by his predecessor Donald Trump.
A banking system under threat
On Sunday evening, the President said in a statement that he was “firmly determined to hold accountable those responsible for this mess”. During the day, the American authorities had announced a series of measures to reassure individuals and businesses, in order to guarantee the withdrawal of all deposits from the bankrupt bank Silicon Valley Bank (SVB) and to allow access to all the deposits of another establishment, Signature Bank, which was closed automatically by the regulator, to everyone’s surprise.
The Federal Reserve (Fed) – the US central bank – has agreed to lend the necessary funds to other banks that need them to honor withdrawal requests from their customers. All of these measures testify to the turbulence that threatens the American banking system, disrupted by the Fed’s forced monetary tightening.
It has put pressure on bank margins, encouraged customers to invest their money in financial products that pay better than current accounts and has shaken up the cash-hungry new technology sector. The wave of withdrawals that followed caused the default of three banks this week, namely SVB, Signature Bank but also Silvergate Bank, smaller but known for its privileged links with the cryptocurrency community.
“The situation is not that of 2008”
After the announcement of the takeover of SVB by the Deposit Guarantee Agency (FDIC) on Friday, many had worried about the fate of deposits blocked by the failure of the establishment. Some 96% of them were, in fact, not covered by the traditional guarantee of deposits, which provides up to 250,000 dollars per customer and per bank. “The banking system is much more resilient and has a much better foundation than before the financial crisis,” insisted a Treasury official. “To be clear, the situation is not like 2008.”
London, for its part, announced that the British branch of SVB had been sold to the British banking giant HSBC, for a symbolic pound. “SVB UK customers will be able to access their deposits and banking services as normal from today”, assures the British Treasury.
At the same time, the American authorities put SVB up for auction with the aim of finding a buyer as soon as possible. The race against time initiated by the American authorities, however, recalls the weekend of September 13 and 14, 2008. They had then failed to find a buyer for the bank Lehman Brothers and refused to intervene, pushing it to file for bankruptcy on Monday , with dramatic consequences for the financial sector and the entire economy.