Joe Biden spoke on the morning of Monday, March 13, in a tone reminiscent of Mario Draghi, the president of the European Central Bank, when he promised in the summer of 2012 to do “whatever it takes” to save the euro. “We’ll do whatever is needed,” assured the US president, in an address delivered at the White House, without taking any questions afterward. The objective was to reassure Americans and financial markets by promising them that their bank deposits were safe in the wake of the sudden bankruptcy of Silicon Valley Bank, which specializes in venture capital ($210 billion in assets).
In response to this failure, the largest since the financial crisis of 2008, the president wanted to play hardball with the bank and another institution specializing in cryptocurrencies, the New York-based Signature ($118 billion in assets). “The management of these banks will be fired,” said Biden, adding that “investors in the banks will not be protected. They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works .”
He added that he was determined to identify the persons responsible: “In my administration, no one is above the law.” The point of all of this strong language was to make clear that this will not be a repeat of 2008, when the banks were bailed out and no bank executives ended up in jail, with the exception of Bernie Madoff, whose fraudulent scheme exploded.
‘No one is above the law’
For now, the crisis is not over. The Fed’s measures have not prevented regional banks from plummeting in the stock market, with their trading halted during the session and losing an average of more than 12%. By the end of the day, First Republic, a wealth management bank in San Francisco, had fallen 62%, despite receiving liquidity from the Fed and JP Morgan. It was followed by PacWest (California) and Western Alliance Bank (Arizona), down 45%, and Zions (Utah, -26%). Even Schwab, the low-cost online broker, was down more than 11%.
We are interested in your experience using the site.
All eyes are on the inflation figures, which are to be released on Tuesday morning. No one believes that the Federal Reserve will now be able to raise rates from 4.5% to 5% at the end of its March 22 meeting, as this would certainly add to the bank’s difficulties. If the number is bad, the central bank will be trapped between its objective of stabilizing prices and its mission of stabilizing the financial sector.
The big problem with this case is the failure of several banks and the need for the federal government to intervene sufficient measures were supposed to have been taken. “Changing the rules ex post like this means the rules were wrong ex ante,” tweeted Harvard economist and former Obama adviser Jason Furman, who believes that we will have to “find out what went wrong with regulation” and “toughen regulation.” He added: “I always thought that small and mid-sized banks got off too easy.”
You have 47.65% of this article left to read. The rest is for subscribers only.