UNITED STATES NEWS

President Joe Biden says financial systems safe after 2 banks collapse

Mar 13, 2023, 7:41 AM | Updated: 3:10 pm
A Silicon Valley Bank sign is shown at the company's headquarters in Santa Clara, Calif., Friday, M...
A Silicon Valley Bank sign is shown at the company's headquarters in Santa Clara, Calif., Friday, March 10, 2023. The Federal Deposit Insurance Corporation is seizing the assets of Silicon Valley Bank, marking the largest bank failure since Washington Mutual during the height of the 2008 financial crisis. The FDIC ordered the closure of Silicon Valley Bank and immediately took position of all deposits at the bank Friday. (AP Photo/Jeff Chiu)
Credit: ASSOCIATED PRESS
(AP Photo/Jeff Chiu)

NEW YORK (AP) — 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 second- and 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.

Just because the government covered for Silicon Valley Bank and Signature Bank “doesn’t mean they are going to cover for these smaller banks,” said Chris Caulfield, a senior partner at West Monroe.

Wesley Zheng, co-founder and CEO of Posh Robotics, which is working to develop sustainable batteries, said he will move $4 million from Silicon Valley Bank to JPMorgan Chase.

“No more small banks. We have so many other things we’re working on, we don’t want to be worried about figuring out the risk management of the banks we’re working with,” he said.

Further, the government’s actions suggested it would stand behind all deposits if doing so prevents damage to the broader economy.

“Everything is now covered. That’s a fact. No matter how specialized or isolated your bank is, if there’s a risk of contagion, regulators have made it clear that they are going to intervene,” said Norbert Michel, a banking policy expert at the libertarian-leaning Cato Institute.

Amid the selloff of midsize banks, investors kept relatively calm over the health of the nation’s biggest banking bulwarks, such as Citigroup, Bank of America and Wells Fargo. Investors apparently concluded that the only place to be safe in banking was with the nation’s most strictly regulated institutions.

Notably, shares in JPMorgan Chase — the nation’s biggest bank with more than $3 trillion in assets — fell a modest 1.8% on Monday.

Regional banks were seen as the riskiest, since they do not have the scale to compete against larger competitors. Large account balances — once seen as a positive sign that a bank’s clients are well off — were a liability since they could be withdrawn at the first sign of trouble.

“I wouldn’t want to be running a regional bank right now where my services are no different from my competition,” Caulfield said.

International regulators also had to step in to ease fears. The Bank of England and U.K. Treasury said they facilitated the sale of a Silicon Valley Bank subsidiary in London to HSBC, Europe’s biggest bank. The deal protected 6.7 billion pounds ($8.1 billion) of deposits.

Under the plan announced by U.S. regulators, depositors at Silicon Valley Bank and Signature Bank were able to access their money. A new Fed program will allow banks to post certain high-quality securities as collateral and borrow from a government emergency fund.

The Treasury has set aside $25 billion to offset any losses. However, Fed officials said they do not expect to have to use that money, given that the securities posted as collateral have a very low risk of default.

New York bank regulators took possession of Signature Bank on Sunday, ousting its leaders and handing day-to-day control over to the Federal Deposit Insurance Corp.

New York Gov. Kathy Hochul said the decision by the state Department of Financial Services was aimed at holding off a bigger crisis involving more banks.

“Our view was to make sure that the entire banking community here in New York was stable, that we can project calm,” Hochul said Monday at a news conference.

She said a high volume of withdrawals that began last week continued with online transactions through the weekend. The bank was open Monday under the name of Signature Bridge Bank.

Signature, which was founded more than two decades ago, has about 40 offices across the country and says it focuses on banking for privately owned businesses, their owners and senior managers.

Though Sunday’s steps marked the most extensive government intervention in the banking system since the 2008 financial crisis, the actions were relatively limited compared with 15 years ago.

The two failed banks themselves have not been rescued, and taxpayer money has not been provided to them.

Michele Barry, a teacher who was at Silicon Valley Bank on Monday, said members of the FDIC and bank employees were available to answer questions.

Barry, who also runs an after-school program for children, wanted to make sure that her four employees would be paid. She was told that all checks from Friday would be honored, along with her automatic payments.

Barry left enough in her account to cover the payments, but she transferred the bulk of her money over to another bank. She said Biden’s reassurance was helpful.

“I’m from South Africa. Chances are if this happened in South Africa, nobody would insure your money,” she said.

United States News

Associated Press

New Mexico OKs its 1st wildlife bridges to limit collisions

SANTA FE, N.M. (AP) — New Mexico will build its first wildlife highway overpasses for free-roaming cougars, black bears, bighorn sheep and other creatures large and small and will also set aside $100 million for conservation projects, under two bills signed Thursday by Gov. Michelle Lujan Grisham. Advocates for the initiatives say the state stands […]
20 hours ago
Images created by Eliot Higgins with the use of artificial intelligence show a fictitious skirmish ...
Associated Press

Trump arrested? Putin jailed? Fake AI images spread online

The highly sensational images have inundated Twitter and other platforms in recent days, amid news that Trump faces arrest warrant for Putin.
20 hours ago
FILE - In this Sept. 3, 2010 file photo, the East Fork of the Jemez River cuts through Valles Calde...
Associated Press

New Mexico tribe keeps title to portion of national preserve

ALBUQUERQUE, N.M. (AP) — A Native American tribe has been granted title to a portion of a national preserve in northern New Mexico following a yearslong court battle against the federal government, a ruling that could provide hope to other tribes seeking to regain rights to their traditional homelands. The 10th U.S. Circuit of Appeals […]
20 hours ago
Associated Press

ACLU: Officials mocked Nevada prison-firefighter burns

CARSON CITY, Nev. (AP) — A group of prison firefighters said their feet burned and their socks melded to their feet during a gruesome fire clean-up assignment that left several unable to walk, stand or shower without assistance for days, according to a new lawsuit. Still, the firefighters were “mocked and ignored” when they initially […]
20 hours ago
FILE - A pile of challenged books appear at the Utah Pride Center in Salt Lake City on Dec. 16, 202...
Associated Press

Library association reports record book ban attempts in 2022

Attempted book bans and restrictions at school and public libraries continue to surge, setting a new record in 2022.
20 hours ago
South Carolina Senate Majority Leader Shane Massey, R-Edgefield, speaks in favor of a bill that wou...
Associated Press

SC Senate OKs bill barring ‘foreign adversary’ land holdings

COLUMBIA, S.C. (AP) — South Carolina’s Republican-controlled Senate passed a bill Thursday that would bar citizens of “foreign adversary” nations from buying property in the state, an anti-espionage measure that critics fear will chill overseas investments over outsize concerns. The measure approved Thursday by a 31-5 vote would apply to citizens of so-called adversarial countries […]
20 hours ago

Sponsored Articles

(Photo by Michael Matthey/picture alliance via Getty Images)...
Cox Communications

Valley Boys & Girls Club uses esports to help kids make healthy choices

KTAR’s Community Spotlight focuses on the Boys & Girls Club of the Valley and the work to incorporate esports into children's lives.
(Pexels Photo)...

Sports gambling can be fun for adults, but it’s a dangerous game for children

While adults may find that sports gambling is a way to enhance the experience with more than just fandom on the line, it can be a dangerous proposition if children get involved in the activity.
...
Day & Night Air Conditioning, Heating and Plumbing

Prep the plumbing in your home just in time for the holidays

With the holidays approaching, it's important to know when your home is in need of heating and plumbing updates before more guests start to come around.
President Joe Biden says financial systems safe after 2 banks collapse