Biden moves to calm jittery public
Bank crisis tests president’s resolve to show stability
WASHINGTON — In 2016, Vice President Joe Biden warned against efforts to unravel banking regulations that Democrats had fought to implement following the nation’s financial crisis, just as the emerging Trump administration was determined to loosen those strict banking rules.
Biden argued that without the far-reaching 2010 banking overhaul known as Dodd-Frank, financial institutions would continue to gamble with consumers’ cash and ultimately hurt the middle class.
“We can’t go back to the days when financial companies take massive risks with the knowledge that a taxpayer bailout is around the corner when they fail,” Biden said in a speech at Georgetown University in the waning days of the Obama administration.
Now there’s a banking crisis on his watch as president, and Biden is moving aggressively to assure the public that it is contained, promising that bank executives will be fired, deposits are safe and taxpayers aren’t on the hook — measures also designed to calm jittery financial markets.
Shares in some big banks dropped Wednesday.
As he contemplates an announcement for a second term, Biden’s ability to avert a contagion among financial institutions will test his contention that his administration represents competence and stability in contrast to the chaos of the Donald Trump years.
His call for additional regulation, though, is likely to run into stiff resistance in the Republican-controlled House and even among
some moderate Democratic lawmakers who joined Republicans to loosen some rules in a 2018 law — not to mention criticism from the still-forming 2024 Republican field that has already labeled his actions a bailout by just another name.
Privately, Biden has been adamant that the government’s intervention would not be like that of 2008, when Congress authorized billions in taxpayer cash to rescue financial institutions that were deemed too big to fail. That’s according to a senior White House official, who was not authorized to describe private discussion by name.
But administration officials believe that this time they had to act substantively despite bad decision-making by bank executives, given the economic risks and the
potential impact on customers who did nothing wrong.
Unlike in 2008, Biden was insistent that bank executives had to pay a price, said the official, granted anonymity to discuss internal White House deliberations.
“The management of these banks will be fired,” Biden declared Monday. If an institution is taken over by the Federal Deposit Insurance Corp., “the people running the bank should not work there anymore.”
On Monday, Biden also stressed that taxpayers will not bear the cost of his administration’s penalties on two banks that just failed, instead tapping into an insurance fund that is paid for by bank fees. And while customers and small businesses who stashed their money with the penalized banks would be protected,
Biden emphasized that investors would not.
“They knowingly took a risk and when the risk didn’t pay off, investors lose their money,” Biden said. “That’s how capitalism works.”
Regulators put Silicon Valley Bank under FDIC control Friday after panicked depositors rushed to withdraw all their funds within a matter of hours. That’s a bank run. Top administration officials, including Treasury Secretary Janet Yellen, stressed that they were monitoring the situation, as reports of companies struggling to figure out how to manage their finances amid the shutdown of two banks that rippled throughout the media and threatened regional banks around the country.
By Sunday night, Treasury, the Federal Reserve
and the FDIC announced that all Silicon Valley Bank clients would be able to access their money, as would depositors from Signature Bank in New York, which similarly failed and would be taken over by state regulators. As administration officials were working behind the scenes, Biden was regularly briefed by his chief of staff, Jeff Zients, National Economic Council director Lael Brainard and Yellen throughout the weekend, according to the White House.
Biden also spoke with outside economists.
Administration officials also worked to brief lawmakers over the weekend, although several Republicans were left off a call for senators with Treasury and FDIC officials Sunday night. After Republicans protested
publicly, and Senate Majority Leader Chuck Schumer, D-N.Y., pointed out to Treasury that GOP senators were excluded, the administration convened a separate briefing Monday for Senate Republicans.
Republicans angling for the 2024 presidential nomination are arguing that customers will ultimately bear the costs of the government’s actions even if taxpayer funds weren’t directly used.
“Joe Biden is pretending this isn’t a bailout. It is,” former South Carolina Gov. Nikki Haley said, arguing that depositors at other banks now are “forced to subsidize Silicon Valley Bank’s mismanagement” and that bank customers will ultimately be responsible for the costs if the insurance fund is drained.