The Biden administration’s struggle to avoid financial contagion from the Silicon Valley Bank failure is as much an attempt to protect a resilient but still vulnerable economy as it is to avoid serious political fallout.
The Treasury Department and federal regulators insisted there was no systemic risk to the banking system as a whole that could trigger a repeat of the 2008 cataclysm, as they rushed to crack down on opening Asian markets to avoid a rush from small or regional US banks.
This Sunday afternoon, regulators took emergency measures to guarantee the deposits of SVB clients. Regulators also closed Signature Bank, another bank that was threatening to go under, and guaranteed its clients similar treatment. US taxpayers will not finance either measure, according to authorities.
Quick action can temper the immediate tension in financial markets. But it is too early to tell whether the government will be forced to take stronger action amid growing concerns about the health of the financial sector. The suddenness of the crisis is exacerbating anxiety since SVB collapsed, seemingly out of nowhere, within 48 hours. The assurances offered by the White House and Treasury Secretary Janet Yellen that the banking system in general is sound are yet another test of economic credibility for an administration marked by its management of high inflation.
President Joe Biden plans to address Americans this Monday morning to tell them about his administration’s emergency plan to contain the bankruptcy of the two banks.
“The American people and business can trust that their bank deposits will be there when they need them,” the president said in a written statement Sunday night. “I am strongly committed to holding those responsible for this disaster fully to account and to continuing our efforts to strengthen supervision and regulation of the largest banks so that we do not find ourselves in this situation again.”
