President Biden promises to protect depositors without any cost to taxpayers following the collapse of Silicon Valley Bank and Signature Bank.
Following the overnight collapse of Silicon Valley Bank (SVB) and Signature Bank, President Joe Biden has pledged to shield depositors without any cost to taxpayers. The event has impacted millions of businesses, venture capitalists, and investors, with major stablecoins such as USD Coin de-pegging from the U.S. dollar after Circle announced that $3.3 billion of its $40 billion reserves were stuck in SVB.
Small businesses across the country that had accounts at Silicon Valley Bank and Signature Bank can breathe easier knowing they will be able to pay their workers.
It won't cost taxpayers a dime.
This is paid for with the fees that banks pay into the Deposit Insurance Fund. pic.twitter.com/1rv949k3X5
— President Biden (@POTUS) March 13, 2023
Biden announced his commitment to holding those responsible for the collapse of SVB and Signature Bank accountable on March 12, stating that the federal government will take action to protect depositors and ensure that the traditional financial system remains safe. While the proactive approach taken by the government has been appreciated, concerns have been raised about taxpayers ultimately bearing the cost of bailing out depositors.
On March 13, President Biden addressed these concerns in a tweet, assuring the public that depositors will not have to pay anything. Despite this, some people remain skeptical and argue that everything the government does or touches ultimately costs taxpayers. Check this thread for the full statement of President Biden:
Everyone who had deposits at those banks can access their money today.
That includes small businesses that need to pay their employees and stay open.
No losses will be borne by the taxpayer.
We'll pay for it from the fees that banks pay into the Deposit Insurance Fund.
— President Biden (@POTUS) March 13, 2023
The collapse of SVB has raised questions about the regulatory oversight of the financial industry, with the Federal Reserve investigating the factors that led to the bank’s failure. The investigation is focused on how the bank was supervised and regulated and the liquidity troubles related to major losses on government bond investments and unprecedented cash withdrawals.
Interest Rate Hike & its Implications
The Federal Reserve’s interest rate hike is usually a sustained effort until something breaks, as per Wall Street’s collective wisdom. While the failures of Silicon Valley Bank and Signature Bank, two of the largest banks, and the subsequent worry of more failures, may seem like a significant breakage, the central bank is expected to continue with its efforts to fight inflation. The bond market’s warning about an impending recession has grown more urgent, and some economists suggest that the Fed should pause its efforts. However, the market is still anticipating the Fed’s efforts to curb inflation, despite the recent events. The SVB, in particular, faced losses worth $16 billion due to Treasury bonds’ lower principal value, resulting from the increased rates. The market overall does not consider the recent events as enough to cause the Fed to pivot.
The probability of a 0.25 percentage point increase in interest rates when the Federal Open Market Committee (FOMC) meets next week is estimated to be around 85% according to a CME Group estimate. While Goldman Sachs has stated that the Fed is unlikely to increase rates this month, few other Wall Street forecasters share this view, with Bank of America and Citigroup expecting a quarter-point increase followed by several more. Goldman Sachs predicts quarter-point increases in May, June, and July, even though it expects the Fed to skip a hike in March.
Goldman Sachs has told clients that it believes Fed officials prioritize financial stability over inflation, at least for the time being, viewing the former as the more immediate problem and the latter as a medium-term problem. Krosby, the chief global strategist at LPL Financial, suggests that the Fed is likely to discuss the idea of holding off on the increase.
Will the FED Continue Fighting Inflation?
Next week’s meeting is important as the FOMC will not only make a decision on rates but also update its projections for the future, including GDP, unemployment, and inflation outlook. It is up for discussion whether the Fed will pause or continue fighting inflation. Fed officials generally dislike the term “pausing,” and Citigroup economist Andrew Hollenhorst believes that doing so would send the wrong message to the market.
Bank of America, on the other hand, remains “watchful” for any signs of the current banking crisis spreading, which could change the forecast. Its chief US economist, Michael Gapen, suggests that monetary policy’s outlook is always dependent on data and that it is also currently dependent on stresses in financial markets.
Powell has emphasized the importance of using data to determine the direction in which he wants to steer policy. The Fed will get its final look at inflation metrics this week when the Labor Department releases its February consumer price index on Tuesday and the producer price counterpart on Wednesday. A New York Fed survey released on Monday indicated that one-year inflation expectations had declined during the month.
Still, many believe that the Fed should have been much more rigorous in its policies. Senator Warren just recently stated that it’s the Fed’s fault that all this is happening.
Fed Chair Powell’s actions directly contributed to these bank failures. For the Fed’s inquiry to have credibility, Powell must recuse himself from this internal review. It’s appropriate for Vice Chair for Supervision Barr to have the independence necessary to do his job.
— Elizabeth Warren (@SenWarren) March 14, 2023
What Should Taxpayers Expect?
The collapse of SVB and Signature Bank highlights the need for stronger regulatory oversight of the financial industry. It is critical to prevent similar events from happening in the future and ensure that taxpayers are not left with the bill.
The government’s commitment to protecting depositors without any cost to taxpayers is a positive step toward restoring confidence in the financial system. It is essential to continue monitoring the situation closely to prevent any further disruptions to the economy.
In conclusion, the collapse of SVB and Signature Bank has had significant impacts on the financial industry and the economy as a whole. The government’s proactive approach to minimizing the damage caused by the banks’ collapse is appreciated, but concerns about taxpayers bearing the cost of the bailout still persist. The investigation by the Federal Reserve into the regulatory oversight of the financial industry is crucial to prevent similar events from happening in the future. It is essential to continue monitoring the situation closely and taking appropriate measures to ensure the stability of the financial system.
