WASHINGTON (AP) — In 2016, Vice President Joe Biden warned of efforts to untangle banking regulations that Democrats had fought to implement after the country’s financial crisis, as did the administration. Emerging Trump was determined to relax these strict banking rules.
Biden argued that without the sweeping 2010 banking overhaul known as Dodd-Frank, financial institutions would continue to gamble with consumer money and ultimately hurt the middle class.
“We can’t go back to the days when financial firms took huge risks knowing that a taxpayer bailout was imminent if they failed,” Biden said in a speech at Georgetown University at the end. of the Obama administration.
Now there’s a banking crisis on his watch as president, and Biden is acting aggressively to assure the public it’s contained, bank executives will be fired, deposits are safe, and taxpayers aren’t to blame. – measures also designed to calm the financial nervousness of the markets.
As he contemplates an announcement for a second term, Biden’s ability to avoid 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 strong resistance in the Republican-controlled House and even among some moderate Democratic lawmakers who joined Republicans in relaxing some rules in a 2018 law — not to mention criticism. of the 2024 still in formation. Republican field that has previously called its bailout actions by another name.
Privately, Biden has been adamant that the government intervention will not be like that of 2008, when Congress authorized billions in taxpayers’ money to rescue financial institutions deemed too big to fail. That’s according to a senior White House official, who was not authorized to describe the private discussion by name.
But administration officials say this time they needed to act substantially despite bad decisions by bank executives, given the economic risks and the potential impact on customers who did nothing wrong.
Unlike in 2008, Biden insisted bank executives had to pay a price, said the official, who granted 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, but instead would dip into an insurance fund paid for by bank fees. And while customers and small businesses who hid their money from penalized banks would be protected, Biden stressed that investors would not.
“They knowingly took a risk and when the risk didn’t pay off, investors lose their money,” Biden said. “That’s how capitalism works.”
California Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, said Biden, like others, cannot ignore the lessons of the 2008 financial meltdown and that after enduring it from first hand, the president was well aware of the stakes. In conversations over the weekend, the White House assured him he was on top.
“I think his main concern was how, No. 1, do we take care of depositors and avoid contagion so that we don’t fundamentally, seriously disrupt the banking system of this country,” Waters said.
Regulators placed Silicon Valley Bank under FDIC scrutiny on Friday afternoon after panicked depositors rushed to withdraw all their funds within hours. It’s a bank rush. Senior administration officials, including Treasury Secretary Janet Yellen, said they were monitoring the situation, amid reports of businesses struggling to figure out how to manage their finances amid the two bank shutdowns. spread through the media and threatened the country’s regional banks.
On Sunday evening, the Treasury, Federal Reserve and FDIC announced that all Silicon Valley Bank customers would be able to access their money, as could depositors at Signature Bank in New York, which also failed and would be picked up by regulators. of State. As administration officials worked behind the scenes, Biden was regularly briefed by his chief of staff, Jeff Zients, 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 absent from a call for senators with Treasury and FDIC officials Sunday night. After Republicans publicly protested and Senate Majority Leader Chuck Schumer, DN.Y., pointed out to the Treasury that GOP senators were being excluded, the administration quickly convened a separate briefing for Republicans of the Senate on Monday afternoon.
There, several GOP senators raised concerns with administration officials that Silicon Valley executives were being rescued in a way that could ultimately hurt community banks in their home countries, according to a person at aware of the call who was granted anonymity to discuss a private conversation. . This is said to be because these banks would be charged new fees to replenish the insurance fund that the administration used to help 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 are already saying customers will ultimately bear the costs of government actions even if taxpayer funds were not directly used. Some economists believe that the increase in fees levied on banks will simply be passed on to consumers, like the increase in loan rates.
“Joe Biden claims this is not a bailout. It is,” former South Carolina Governor Nikki Haley said, saying depositors at other banks are now “forced to subsidize the bad management of Silicon Valley Bank” and that bank customers will ultimately be responsible for the costs if the insurance fund is depleted.
Sen. Tim Scott, R.S.C., the top Republican on the Senate Banking Committee considering a presidential bid, also criticized what he called a “culture of government intervention,” arguing that it encourages banks to continue to engage in risky behavior if they know the federal agencies will eventually save them.
The White House and other administration officials insist their actions are not a bailout. But Harvard University economist Kenneth Rogoff said while the government is right to protect depositors at the two banks, the money spent to restore them is “certainly a bailout”.
“The government swore after the financial crisis that it was not going to bail out uninsured depositors and that it was not going to bail out monetary funds,” Rogoff said. “Basically, as I understand it, he guarantees everything. So it’s definitely a bailout.
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AP White House Correspondent Zeke Miller and AP Chief Congressional Correspondent Lisa Mascaro contributed to this report.