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SVB collapse: Biden risks renewed economic worries and anti-bailout backlash

By Naomi Lim,

2023-03-14

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President Joe Biden is trying to reassure a public that still mostly remembers the 2007-08 financial crisis that the country's banking system and their deposits are safe.

But although Republicans are quick to criticize executives at the now-defunct Silicon Valley Bank for miscalculating the institution's interest rate risk, they are also scrutinizing Biden for contributing to the economic conditions that led to its collapse amid their budget and debt ceiling standoff with the White House .

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Biden and his administration are "getting very good" at responding to crises they played a role in creating, according to Rep. Dan Meuser (R-PA).

"I wouldn't say they completely caused this one, but the environment they created caused that," he told the Washington Examiner .

Meuser, a former businessman who has represented Pennsylvania's coal region since 2019 and now sits on the House Financial Services Committee , cited SVB's investments being devalued because of interest rate rises introduced to counter "Bidenflation" as the "root cause'" of the technology industry-focused institution's shuttering.

"Secondly, there was no basic bank supervision," he said. "It's just hard to understand when you have the [Office of the Comptroller of the Currency] and [Gary] Gensler at the [Securities and Exchange Commission] spending all this time on what I think are illegal [environmental, social, and governance] enforcement mandates , and when something like this occurs, you can't help but think that they've got their eye off the ball."

Meuser added that he did not support further red tape but would prefer the federal government and regulators "just enforce the regulations that currently exist."

Rep. John Rose (R-TN), another House Financial Services Committee member, compared empowering regulators to "allowing the arsonist to be a firefighter."

"To be clear, this is a bailout regardless of what the administration says," he said. "The [Federal Deposit Insurance Corporation's] Deposit Insurance Fund is backed by the Treasury, which taxpayers fund. So the bottomless bailout Biden proposed this morning will surely be sponsored by Americans in one way or form."

Rep. Ralph Norman (R-SC) dismissed Biden's claims that SVB's predicament was permitted by former President Donald Trump's efforts to dismantle the Dodd-Frank law , implemented after the financial crisis. He is additionally concerned about the precedent Biden has set by guaranteeing all deposits beyond the Federal Deposit Insurance Corporation's $250,000 insurance policy cap, uncertain about whether it had adequate funds.

"We'll wade into the bank situation and see what happens," he said. "In the meantime, we've got his budget to look at, which makes no sense. We will have our ultimate budget proposal that hopefully will pass in the House. Biden's budget is dead on arrival. It is part of the regulations and taxes that are causing the economy to flounder."

Rep. Bryan Steil (R-WI) is adamant Congress should be "driving down inflation by controlling spending, unleashing American energy , and helping workers get back to work.” Rep. Ann Wager (R-MO) added her "constituents need to know that Congress has no plans to use taxpayer dollars to bail out banks."

But with respect to SVB, Rep. Young Kim (R-CA) promised "to follow the facts and do my part on the Financial Services Committee to conduct oversight of regulators and the federal government’s decision-making process."

"Playing political games and rushing to conclusions will not get us closer to getting answers and finding solutions," she said.

Biden "had little choice" but to make SVB depositors whole based on its number of tech customers, according to the Brookings Institution's Darrell West.

"It would have been harmful to the overall economy if a bunch of tech companies were not able to pay their employees and access needed funds," the Center for Technology Innovation senior fellow said. "Shareholders and bondholders are not covered, so the action is not a bailout of investors. One key uncertainty is whether there will be a buyer of this bank. If another firm purchases it, that would insulate the economy from any significant damage."

Biden already struggles with public perception and the economy. On average, 37.5% of poll respondents approve of his handling of the economy, and 58% disapprove, according to RealClearPolitics .

White House press secretary Karine Jean-Pierre was defensive Monday, insisting Biden was "fully engaged ... over the weekend" related to SVB and that being a backstop for the institution's deposits is "not a bailout."

"The funds are from fees on banks and not taxpayers, so this is very different from what we saw in 2008," she said. "The Obama-Biden administration put in place tough requirements to ensure banks have more capital and sufficient liquid assets. Depositors have more protection for their deposits, and regulators have the tools to supervise larger institutions that deal with disruptions."

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Biden similarly emphasized that SVB investors "knowingly took a risk" and that the risk "didn’t pay off," repeating that "that’s how capitalism works."

"During the Obama-Biden administration, we put in place tough requirements on banks like Silicon Valley Bank ... including the Dodd-Frank law, to make sure the crisis we saw in 2008 would not happen again," he said in the Roosevelt Room. "Unfortunately, the last administration rolled back some of these requirements. I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure will happen again and to protect American jobs and small businesses."

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