Biden Says Banking System Is Safe After Silicon Valley Bank Collapse

Mr. Biden’s comments came one day after federal regulators announced emergency measures to guarantee all depositors with money at Silicon Valley Bank following its failure, rather than the standard $250,000 in insured deposits. Federal regulators said any losses to the government’s fund would be recovered in a special assessment on banks and that U.S. taxpayers wouldn’t bear any losses.

Many lawmakers said they needed more information about actions by the banks and regulators ahead of the failures before seeking changes to bank rules, while signaling they were also wary of any action that could be considered a bailout. Democrats indicated they would seek to tighten regulations on midsize banks like

SVB

and examine raising the insurance ceiling for individual accounts from its current level of $250,000. Some Republicans pointed the finger at Democratic policies they say fueled inflation and helped lead to SVB’s failure.

Regulators took control of SVB on Friday and on Sunday said they had taken control of a second lender, Signature Bank, one of the main banks for cryptocurrency companies. Officials took the extraordinary step of designating SVB and Signature Bank as a systemic risk to the financial system, which gives regulators flexibility to guarantee uninsured deposits.

The moves to shore up wavering confidence in the banking system were jointly announced on Sunday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. 

U.S. stocks closed little changed Monday following a turbulent morning, but bank stocks continued to plunge, while investors rushed to the safety of government bonds.

Mr. Biden said that deposits in SVB and Signature were safe and customers would have access to their money starting Monday and no losses would be borne by taxpayers. He said he would ask Congress and banking regulators to strengthen the rules for banks, to “make it less likely this kind of bank failure would happen again.”

The bank failures put the spotlight on deregulation efforts made during the Trump administration. In 2018, Congress passed legislation to relieve smaller lenders from some of the most onerous rules put in place after the financial crisis, including restrictions meant to limit the damage firms could cause to the economy. 

Specifically, the legislation cut the number of banks subject to heightened Federal Reserve oversight by raising a key regulatory threshold to $250 billion in assets from an earlier $50 billion cutoff. By raising the threshold, the new legislation gave regulators space to lighten the load for SVB and other midsize firms like it. 

Had the lightened rules not been in place for such lenders, for instance, SVB’s capital position likely would have eroded slowly over time as the Fed raised interest rates. That would likely have prompted the firm and its supervisors to take steps earlier to place the lender on sounder financial footing before last week’s meltdown, say industry observers. 

Sen. Elizabeth Warren (D., Mass.) said the recent bank failures “are the direct result of leaders in Washington weakening the financial rules,” and she called for repealing the 2018 law and changing deposit insurance rules. “Never again should large companies with billions in unsecured deposits expect, or receive, free support from the government,” she wrote in a New York Times opinion article.

Sen.

Mitt Romney

(R., Utah) said he had been in regular contact with the White House as well as Democrats and Republicans on the banking committees in the House and Senate.

“I think it’s fair to say that either the regulations or regulators didn’t provide the warning that was necessary,” he said in a call hosted by Utah startup organization Silicon Slopes on Monday. He added that he believed the administration and the Fed took the right steps to try to stop the contagion. “I can tell you confidently that we will return to stability, I just can’t tell you when,” he said.

Sen. Tim Scott of South Carolina, the top Republican on the Senate Banking Committee, said he would seek accountability from both the banks and regulators.

“Building a culture of government intervention does nothing to stop future institutions from relying on the government to swoop in after taking excessive risks,” Mr. Scott said.

Republicans on the House Financial Services Committee held a conference call on Monday to discuss the collapse of Silicon Valley Bank and concluded that they didn’t yet have enough information from regulators to know what role Congress might consider playing.

“We need more information from the regulators,” said Rep.

Barry Loudermilk

(R., Ga.), a member of the House Financial Services Committee. “What did cause the collapse of the bank? Was it just poor management? Was it the investments?” He also questioned whether regulators shared some blame as well.

“We’re going to work together to see what we need to do to ensure that we don’t have systemic problems in our banking system,” said California Rep.

Maxine Waters,

the top Democrat on the House Financial Services Committee. She said revamped bank stress testing and changes to the limit on federal deposit insurance were among the topics she wanted to examine.

Rep. Bryan Steil (R., Wis.), a member of the House Financial Services Committee, said that the administration is “looking to shift blame away from inflation and to anything else, so they’ve landed on this policy as the culprit,” referring to the 2018 law.

The Federal Reserve began raising rates last year to curb inflation. Rising interest rates dented the value of SVB’s massive bond portfolio, just as startups drained their funds faster than expected, leading to the bank’s crisis last week.

Some Democrats and Republicans also questioned whether taxpayer money would be involved in rescuing the banks and their customers. Regulators said any losses to the deposit insurance fund to cover uninsured deposits would be recovered by a special assessment charged to banks.

“I think it’s a bit misleading for the administration to say that taxpayers are not being asked to be on the hook,” said Mr. Steil, pointing to the special fee that he said could trickle down to consumers.

Sen.

Josh Hawley

(R., Mo.) said he planned to introduce legislation to prevent the fees from being passed through to the public, saying the Biden administration has “found a way to make taxpayers pay for a bailout without taking a vote on it.”

The White House insisted the moves by regulators didn’t amount to a bailout, wanting to avoid comparisons to the rescues of big banks tied to the financial crisis.

“This is not 2008,” White House press secretary

Karine Jean-Pierre

told reporters Monday. “The funds are from fees on banks and not taxpayers. So this is very different than what we saw in 2008.” Ms. Jean-Pierre also said that Congress and the banking regulators should strengthen the rules for banks but she declined to detail specific proposals the White House is seeking.

In his remarks earlier in the day, Mr. Biden said that investors in the failed banks won’t be protected and management will be replaced. He said they knowingly “took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”

A senior Treasury official said Sunday that the steps didn’t constitute a bailout because stock and bondholders in SVB and Signature wouldn’t be protected.

“We must get the full accounting of what happened and why,” Mr. Biden said, so that “those responsible can be held accountable.” 

—Andrew Ackerman contributed to this article.

Write to Sabrina Siddiqui at [email protected], Siobhan Hughes at [email protected] and Natalie Andrews at [email protected]

Mr. Biden’s comments came one day after federal regulators announced emergency measures to guarantee all depositors with money at Silicon Valley Bank following its failure, rather than the standard $250,000 in insured deposits. Federal regulators said any losses to the government’s fund would be recovered in a special assessment on banks and that U.S. taxpayers wouldn’t bear any losses.

Many lawmakers said they needed more information about actions by the banks and regulators ahead of the failures before seeking changes to bank rules, while signaling they were also wary of any action that could be considered a bailout. Democrats indicated they would seek to tighten regulations on midsize banks like

SVB

and examine raising the insurance ceiling for individual accounts from its current level of $250,000. Some Republicans pointed the finger at Democratic policies they say fueled inflation and helped lead to SVB’s failure.

Regulators took control of SVB on Friday and on Sunday said they had taken control of a second lender, Signature Bank, one of the main banks for cryptocurrency companies. Officials took the extraordinary step of designating SVB and Signature Bank as a systemic risk to the financial system, which gives regulators flexibility to guarantee uninsured deposits.

The moves to shore up wavering confidence in the banking system were jointly announced on Sunday by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. 

U.S. stocks closed little changed Monday following a turbulent morning, but bank stocks continued to plunge, while investors rushed to the safety of government bonds.

Mr. Biden said that deposits in SVB and Signature were safe and customers would have access to their money starting Monday and no losses would be borne by taxpayers. He said he would ask Congress and banking regulators to strengthen the rules for banks, to “make it less likely this kind of bank failure would happen again.”

The bank failures put the spotlight on deregulation efforts made during the Trump administration. In 2018, Congress passed legislation to relieve smaller lenders from some of the most onerous rules put in place after the financial crisis, including restrictions meant to limit the damage firms could cause to the economy. 

Specifically, the legislation cut the number of banks subject to heightened Federal Reserve oversight by raising a key regulatory threshold to $250 billion in assets from an earlier $50 billion cutoff. By raising the threshold, the new legislation gave regulators space to lighten the load for SVB and other midsize firms like it. 

Had the lightened rules not been in place for such lenders, for instance, SVB’s capital position likely would have eroded slowly over time as the Fed raised interest rates. That would likely have prompted the firm and its supervisors to take steps earlier to place the lender on sounder financial footing before last week’s meltdown, say industry observers. 

Sen. Elizabeth Warren (D., Mass.) said the recent bank failures “are the direct result of leaders in Washington weakening the financial rules,” and she called for repealing the 2018 law and changing deposit insurance rules. “Never again should large companies with billions in unsecured deposits expect, or receive, free support from the government,” she wrote in a New York Times opinion article.

Sen.

Mitt Romney

(R., Utah) said he had been in regular contact with the White House as well as Democrats and Republicans on the banking committees in the House and Senate.

“I think it’s fair to say that either the regulations or regulators didn’t provide the warning that was necessary,” he said in a call hosted by Utah startup organization Silicon Slopes on Monday. He added that he believed the administration and the Fed took the right steps to try to stop the contagion. “I can tell you confidently that we will return to stability, I just can’t tell you when,” he said.

Sen. Tim Scott of South Carolina, the top Republican on the Senate Banking Committee, said he would seek accountability from both the banks and regulators.

“Building a culture of government intervention does nothing to stop future institutions from relying on the government to swoop in after taking excessive risks,” Mr. Scott said.

Republicans on the House Financial Services Committee held a conference call on Monday to discuss the collapse of Silicon Valley Bank and concluded that they didn’t yet have enough information from regulators to know what role Congress might consider playing.

“We need more information from the regulators,” said Rep.

Barry Loudermilk

(R., Ga.), a member of the House Financial Services Committee. “What did cause the collapse of the bank? Was it just poor management? Was it the investments?” He also questioned whether regulators shared some blame as well.

“We’re going to work together to see what we need to do to ensure that we don’t have systemic problems in our banking system,” said California Rep.

Maxine Waters,

the top Democrat on the House Financial Services Committee. She said revamped bank stress testing and changes to the limit on federal deposit insurance were among the topics she wanted to examine.

Rep. Bryan Steil (R., Wis.), a member of the House Financial Services Committee, said that the administration is “looking to shift blame away from inflation and to anything else, so they’ve landed on this policy as the culprit,” referring to the 2018 law.

The Federal Reserve began raising rates last year to curb inflation. Rising interest rates dented the value of SVB’s massive bond portfolio, just as startups drained their funds faster than expected, leading to the bank’s crisis last week.

Some Democrats and Republicans also questioned whether taxpayer money would be involved in rescuing the banks and their customers. Regulators said any losses to the deposit insurance fund to cover uninsured deposits would be recovered by a special assessment charged to banks.

“I think it’s a bit misleading for the administration to say that taxpayers are not being asked to be on the hook,” said Mr. Steil, pointing to the special fee that he said could trickle down to consumers.

Sen.

Josh Hawley

(R., Mo.) said he planned to introduce legislation to prevent the fees from being passed through to the public, saying the Biden administration has “found a way to make taxpayers pay for a bailout without taking a vote on it.”

The White House insisted the moves by regulators didn’t amount to a bailout, wanting to avoid comparisons to the rescues of big banks tied to the financial crisis.

“This is not 2008,” White House press secretary

Karine Jean-Pierre

told reporters Monday. “The funds are from fees on banks and not taxpayers. So this is very different than what we saw in 2008.” Ms. Jean-Pierre also said that Congress and the banking regulators should strengthen the rules for banks but she declined to detail specific proposals the White House is seeking.

In his remarks earlier in the day, Mr. Biden said that investors in the failed banks won’t be protected and management will be replaced. He said they knowingly “took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”

A senior Treasury official said Sunday that the steps didn’t constitute a bailout because stock and bondholders in SVB and Signature wouldn’t be protected.

“We must get the full accounting of what happened and why,” Mr. Biden said, so that “those responsible can be held accountable.” 

—Andrew Ackerman contributed to this article.

Write to Sabrina Siddiqui at [email protected], Siobhan Hughes at [email protected] and Natalie Andrews at [email protected]