Government races to reassure US that banking system is safe
NEW YORK — Depositors withdrew savings and investors broadly sold off bank shares Monday as the federal government raced to reassure Americans that the banking system was secure after two bank failures fed fears that more financial institutions could fall.
President Joe Biden insisted that the system was safe after the secondand third-largest bank failures in the nation’s history happened in the span of 48 hours. In response to the crisis, regulators guaranteed all deposits at the two banks and created a program that effectively thew a lifeline to other banks to shield them from a run on deposits.
“Your deposits will be there when you need them,” Biden told the public, seeking to project calm. He also said the banking executives responsible for the failures would be held accountable.
In other developments, the Federal Reserve announced that it would reassess its supervision of Silicon Valley Bank.
“We need to have humility and conduct a careful and thorough review of how we supervised and regulated this firm, and what we should learn from this experience,” said Michael Barr, the Fed’s vice chair for supervision, who will lead the effort.
Regulators closed the bank Friday after depositors rushed to withdraw their funds all at once. The only larger failure in U.S. banking history was the 2008 collapse of Washington Mutual. New York-based Signature Bank was seized by regulators late Sunday in third-largest failure in the U.S.
In both cases, the government agreed to cover deposits, even those that exceeded the federally insured limit of $250,000.
Despite the message from the White House, investors broadly dumped shares in bank stocks. Shares of First Republic Bank closed down more than 60% even after the bank said it was taking emergency funding from the Federal Reserve and additional money from JPMorgan Chase.
Shares in KeyCorp and Comerica plunged by nearly a third. The stock of well-known franchises such as Charles Schwab, Fifth Third Bank, Truist and Huntington Bancshares all dropped by double digits.
The selloff happened in part because the country woke up to a new banking system and investors had to find the winners and losers, banking experts said.
There was no guarantee that the anxiety would not spread. Customers at other banks with deposits over the $250,000 limit remained at risk of losing access to their money for a time.