Pete Schroeder, Saeed Azhar
WASHINGTON/NEW YORK, March 25 (Reuters) – The sudden collapse of Silicon Valley Bank has triggered a banking crisis SIVB.O The stark divide between Washington and Wall Street has been exposed. While bankers demand faster and more aggressive actions to save the industry, the Biden White House argues that they have done everything within the law’s limits.
Some critics wonder if the Biden administration could not have managed the crisis with more aggressive actions from the beginning.
Edward Campbell, cohead for the multi-asset group at PGIM Quantitative Solution, said that although policymakers have done some good things, they still haven’t broken out of the big bazooka yet. “They will have to do more.”
The collapse of SVB and First Republic, which led to the destruction of regional banks’ stocks, has caused them to be severely damaged. Investors and analysts worry that fleeing depositors could destabilize small- and medium-sized banks without further government intervention.
The public repudiation of 2008’s bailouts has led some officials in the Biden Administration to say that they will protect depositors and preserve the system. However, they do not plan on saving individual banks or putting taxpayers at financial risk..
FIND A BUYER TO SVB
Regulators were caught off guard by the failure of the 16th largest bank in the country. Instead of waiting for markets close, the FDIC shut down the bank on Friday.
Two industry sources claim that the FDIC did not start talking to potential buyers until Saturday and didn’t allow banks review SVBs finances.
Senate Banking Committee Chairman Sherrod Brown, an Ohio Democrat, said his conversations with top U.S. regulators suggested there had been a chance for a private buyer but “apparently, the due diligence meant that either they backed out or the FDIC didn’t think they were capable.”
According to one government source, the FDIC cannot pursue the most expensive deals for its deposit insurance fund. This limits the options for quick sales.
FDIC is expected this weekend to announce next steps in the administration of assets belonging to SVB.
DEPOSIT MESSAGING
Janet Yellen, Treasury Secretary, led the administration in reassuring depositors that their money was safe. They also negotiated technical and legal limitations and made clear they did not plan to bail out ailing banks.
Markets Whipsawed Yellen’s comments this past week left us unable to understand how far the administration would go in order to protect depositors as well as the banking system.
According to the administration, it is doing everything it can to protect depositors without putting taxpayer money at risk or bailing banks out.
“We will use tools we have to give the American people confidence that their deposits will be safe,” White House press secretary Karine Jean-Pierre said Thursday.
A Treasury spokesperson noted that deposits were stable at regional banks and sometimes “modestly reversed.”
The banking industry is divided on how to reassure depositors.
“Certainly, people would like to see more out of the Biden administration,” said Chris Brown, a lobbyist with the firm Mindset in Washington and former House Financial Services Committee staffer. He said that “what they want to see is all over the place.”
MORE RELIEF, REGULATION
The banking industry is looking for broad relief to calm the markets while Washington talks about how to prevent the next crisis.
Todd Phillips (an ex-FDIC attorney) stated, “My impression right now is that regulators believe everything is under Control.”
President Joe Biden Has asked legislation to make it easier for bank executives to recover pay and profits from stock sale sales. Regional banks will be subject to stricter rules by the Federal Reserve.
“It is evident that we must strengthen supervision and regulation. Jerome Powell, Fed Chairman said Wednesday that he believes there will be recommendations. He plans to support them.
(Reporting by Pete Schroeder, Saeed Azhar, and Heather Timmons; additional reporting by Chris Prentice David Morgan and Andrea Shalal; editing by Megan Davies and Heather Timmons; Paritosh Bangsal
((Pete.Schroeder@thomsonreuters.com; 202-310-5485;))
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