As the collapse of Silicon Valley Bank causes ripples to affect the rest of the banking world, speculation on the situation is casting blame.
The similar 2008 banking collapse is still remembered as a global disaster, and eyes are on the progression that has followed the west coast banking failure.
The initial banks were connected to business and tech companies, including start-ups, and the cryptocurrency situation is thought to be a factor.
Signature Bank in New York also failed last week, and banking insurance measures have gone above and beyond the arranged $250,000 limit of covering funds to announce that all funds will be covered. Though there are statements to the effect that taxpayer funds will not be needed, it is not yet clear what funds will be used to cover the bailout.
European banks are also experiencing turmoil, as the usually stable Swiss bank Credit Suisse is in trouble and it is announced that the banking giant will now buy it for $3.25 billion, AP reported today. Founded in 1856, the bank has been a pillar of stable Swiss banking.
BBC reported on the Swiss situation:
“Divisive management, costly exposure to finance company Greensill Capitol, which collapsed in 2021, a seedy money laundering case, and waning customer confidence in the last few months saw billions being withdrawn from the bank. All it took to turn those doubts into a stampede was an apparently off-the-cuff remark from the Saudi National Bank, which owns almost 10% of Credit Suisse, suggesting it would not be increasing its investment.”
As banks are failing and bailouts begin, the cause of the situation is on all minds. This is the largest banking collapse since the 2008 financial disaster.
As Newsmax reports:
Biden administration policies are to blame for the collapse of Silicon Valley Bank, Sen. Tom Cotton told Fox News’ “Sunday Morning Futures.” The Arkansas Republican, who sits on the Senate Judiciary Committee, said, “The failure of Silicon Valley Bank and the stress it’s put on our banking sector and the economy really is Joe Biden’s failures all the way down.
“It was Joe Biden’s reckless spending that created runaway inflation, which led to higher interest rates, which put the squeeze on banks like Silicon Valley Bank,” he said. “And it was Joe Biden’s administration that didn’t properly oversee and supervise a bank like Silicon Valley Bank six months ago or a year ago to make sure they were doing proper risk management of the interest rate spreads between deposits on the one hand and assets on the other hand.”
Cotton called the decision to bail out SVB in California a double standard, saying, “It’s obvious to everyone that Joe Biden would not have bailed out a bank in midland Texas that banked, almost exclusively, the oil and gas industry.”
The senator also slammed the president’s reluctance to help arrange a “shotgun wedding merger” (an emergency merger between two institutions vital to at least one of the companies struggling) between SVB and another, larger institution, saying of the Biden administration, “They’re ideologically opposed to any kind of mergers.”
Cotton said, “What we got instead was the Biden bank bailout — which will, in fact, be going to Chinese companies, because it’s well known that Silicon Valley Bank was an access point for Chinese companies to get American money.”
Chinese startups have long relied on SVB, which had forged ties with local government officials in Shanghai, for venture capital funds after traditional U.S. banks turned them away, New York Post reports. “Silicon Valley Bank has played an instrumental role for us,” Guanchun Wang, founder of Laiye, a Beijing-based tech startup stated.
Biden’s promise that no taxpayer funds will be used to bail out the banks sets up a political no-win situation for his administration, say some analysts, since Biden is against private mergers. Of course, the president is declaring that all is well and the underlying banking infrastructure is “safe and secure” from the collapses that have already taken place.
In remarks on Monday, Biden promised that taxpayers would not bear the costs and the money would instead come from fees that the banks pay into the Federal Deposit Insurance Fund, the LA Times reported. usually this covers $250,000 in funds per account, but the Fed has promised to cover all funds lost.
The Times continued that Biden also vowed to hold accountable those responsible for the collapse and said the bank’s shareholders would not be protected. The FDIC has fired the top executives of SVB and Tim Mayopoulos is now the new chief executive. Mayopoulos is a software executive who helped mortgage guarentee company Fannie Mae navigate the financial crisis and served as its chief executive from 2012 to 2018.
But predictably, Biden is blaming former President Trump for the collapses – specifically his 2018 decision to loosen banking rules that were enacted in the wake of the 2008 financial crisis.
