Biden’s test: Can he show ability to prevent banking chaos?

In 2016, Vice President Joe Biden warned against efforts to roll back banking regulations that Democrats had struggled to implement after the nation’s financial crisis, as the emerging Trump administration was determined to loosen those strict banking rules.

Biden argued that without the sweeping 2010 banking reform 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 of financial firms taking huge risks knowing that a taxpayer bailout is around the corner when they fail,” Biden said in a speech at Georgetown University during the Obama administration.

Now there is a banking crisis as president, and Biden is moving aggressively to assure the public that it has been contained, bank executives will be fired, deposits are safe and taxpayers are not on the hook — measures also designed to calm jittery financial markets.

As he considers a second term announcement, Biden’s ability to prevent a contagion among financial institutions will test his claim that his administration represents competence and stability in contrast to the chaos of the Donald Trump years.

His call for additional regulation, however, is likely to meet stiff resistance in the Republican-controlled House and even some moderate Democratic lawmakers who joined with Republicans to loosen some rules in a 2018 law — not to mention criticism from the still-forming 2024 Republican field that has already characterized his actions as a bailout by another name.

Privately, Biden has been adamant that government intervention would not be like that of 2008, when Congress approved billions in taxpayer cash to bail out financial institutions deemed too big to fail. That’s according to a senior White House official who was not authorized to describe the private conversation by name.

But administration officials believe that this time they had to act effectively despite poor decision-making by bank executives, given the financial risks and the potential impact on customers who did nothing wrong.

Unlike in 2008, Biden insisted bank executives had to pay a price, the official said, speaking on condition of anonymity to discuss internal White House deliberations.

“The management of these banks will be fired,” Biden said Monday. If an institution is taken over by the Federal Deposit Insurance Corp., “the people who run the bank should no longer work there.”

On Monday, Biden also stressed that taxpayers would not bear the cost of his administration’s sanctions on the two failed banks, instead tapping into an insurance fund paid for by bank fees. And while customers and small businesses who hide their money in penalized banks will be protected, Biden stressed that investors will not.

“They knowingly took a risk, and when the risk didn’t pay off, investors lost their money,” Biden said. “That’s how capitalism works.”

Rep. Maxine Waters of California, the top Democrat on the House Financial Services Committee, said that Biden, like others, cannot ignore the lessons of the 2008 financial meltdown and that, having experienced firsthand, the president he was well aware of the stakes. In talks over the weekend, the White House assured her it was on top.

“I think his main concern was how, No. 1, to take care of depositors and avoid contagion so that we don’t fundamentally, seriously disrupt the banking system in this country,” Waters said.

Regulators placed Silicon Valley Bank under FDIC supervision Friday afternoon after panicked depositors rushed to withdraw all their funds within hours. This is a bank run. Top administration officials, including Treasury Secretary Janet Yellen, stressed they were monitoring the situation as reports of companies struggling to figure out how to manage their finances amid a two-bank shutdown hit the media and threatened regional banks across the country. the country.

By Sunday night, the Treasury Department, the Federal Reserve and the FDIC announced that all Silicon Valley Bank customers would have access to their money, as would depositors at Signature Bank in New York, which similarly failed and will was being acquired by state regulators. As administration officials worked behind the scenes, Biden was regularly briefed by his chief of staff, Jeff Ziedz, National Economic Council Director Lael Brainard and Yellen throughout the weekend, according to the White House.

Biden also spoke with outside economists, though the White House declined to identify them.

Administration officials also worked to brief lawmakers over the weekend, though several Republicans were left off the call for senators with Treasury and FDIC officials Sunday night. After Republicans publicly protested and Senate Majority Leader Chuck Schumer, D-N.Y., pointed out to the Treasury Department that GOP senators had been disqualified, the administration quickly called a separate briefing for Senate Republicans on Monday afternoon.

There, several GOP senators conveyed their concerns to administration officials that Silicon Valley executives were being bailed out in a way that could ultimately hurt community banks in their home states, according to a person with knowledge of the call who spoke on condition of anonymity. discuss a private chat. . This would be because these banks would be assessed with new fees to replenish the insurance fund that the administration used to help the depositors of the two failed banks.

Indeed, the political specter of the word “bailout” will hang over the White House for some time.

Republicans seeking the 2024 presidential nomination already argue that customers will ultimately bear the cost of government actions, even if taxpayer funds were not directly used. Some economists believe that more fees imposed on banks will simply be passed on to consumers, such as higher interest rates on loans.

“Joe Biden is pretending this isn’t a bailout. It is,” former South Carolina Gov. Nikki Haley said, arguing that depositors at other banks are now “forced to subsidize Silicon Valley Bank’s mismanagement” and that the banks’ customers will ultimately be responsible for the costs if the insurance fund runs out .

Sen. Tim Scott, RSC, the top Republican on the Senate Banking Committee who is considering a presidential nomination, also criticized what he called a “culture of government intervention,” arguing that it gives banks incentives to continue risky behavior if they know federal agencies will finally save them.

The White House and other administration officials insist their actions are not a bailout. But Harvard University economist Kenneth Rogoff said that while he agreed the government was right to protect depositors at the two banks, the money spent to make them whole was “definitely a bailout.”

“The government swore after the financial crisis that it wasn’t going to bail out uninsured depositors and it wasn’t going to bail out money,” Rogoff said. “Basically, as I understand it, it guarantees everything. So this is definitely a lifesaver.”


AP White House Correspondent Zeke Miller and AP Congressional Chief Correspondent Lisa Mascaro contributed to this report.

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