President Biden told advisers late last week that he objected to any prospective aid for the collapsed Silicon Valley Bank that could be cast as a bailout or would reward those who ran the banks or invested in them.
By Sunday, the president had agreed to a sweeping intervention that would protect all the bank’s depositors, including large companies. Some Republicans say Biden did what he said he wouldn’t — offer a bailout that rewards the undeserving — but the White House argues that the president’s plan is aimed narrowly at protecting small businesses, nonprofits and thousands of ordinary workers whose jobs were at risk of being wiped out by the bank’s failure.
Either way, the president’s private concerns — stemming in part from his belief that the federal government had been too friendly to big banks amid the 2008 financial crisis — highlights the explosive nature of any proposal that is seen as providing federal assistance to wealthy individuals and powerful business groups.
The politics surrounding the federal intervention are complicated for both parties, who are highly sensitive to any charge that they are beholden to elites at the expense of working-class Americans. The back and forth was an echo of the politics surrounding the 2008 financial crisis, when both parties felt the wrath of voters amid a perception that they had bailed out powerful financiers responsible for the suffering of ordinary Americans.
But it also foreshadows the upcoming presidential campaign, with Biden and his likely Republican rivals all keen to emphasize their allegiance to blue-collar Americans.
Just a few days after proposing a budget that calls for trillions in new tax hikes on the rich and corporations, Biden tried to cast his administration’s bank intervention as part of his economic populism. In a five-minute speech Monday morning, he talked about the need to protect small businesses four separate times.
“Small businesses across the country that had deposit accounts at these banks can breathe easier knowing they’ll be able to pay their workers and pay their bills,” Biden said. “And their hard-working employees can breathe easier as well.”
Senior administration officials, sensitive to the political landscape, consciously crafted a plan aimed at avoiding the “bailout” moniker. The aides — including Chief of Staff Jeff Zients, Treasury Secretary Janet L. Yellen and Lael Brainard, director of the National Economic Council — also gave Biden specific anecdotes to demonstrate that the types of victims who were at risk from the bank’s collapse went beyond large firms and venture capitalists.
Biden, who continued to have doubts into the weekend, also held conversations with other officials, including California Gov. Gavin Newsom (D).
But the administration’s actions still ignited a firestorm, with Republican critics charging that the government had mobilized to protect business interests influential in the Democratic Party. Still, it was not clear if even the dramatic actions approved by the administration would be sufficient to stave off the financial panic, with bank stocks sliding by double-digits on Monday.
“I’m sure there is discomfort with it,” said Dean Baker, an economist at the Center for Economic and Policy Research, a left-leaning think tank, about the White House. “I’m sure there was unease about this.”
Michael Kikukawa, a White House spokesman, said in a statement: “The President’s direction from the outset has been to respond in a way that protects hardworking Americans and small businesses, keeps our banking system strong and resilient, and ensures those responsible are held accountable. That’s exactly what his Administration’s actions have done.”
Throughout the weekend, California officials repeatedly urged the Biden administration to act, arguing that a failure to rescue Silicon Valley Bank could hammer the tech-heavy local economy. Some lawmakers praised the president as they promised to take a closer look at the circumstances leading to the collapse of Silicon Valley Bank.
“Start-ups are going to be able to pay all their workers, all their personnel,” said Rep. Maxine Waters (Calif.), the top Democrat on the House Financial Services Committee.
“All I know is this: We have to be concerned about risk,” she later added, citing the bank’s unique financial predicament and the fact that a significant portion of its deposits were large and may have belonged to unpredictable start-ups. “That might have created some risk, and we need to take a look at that.”
Some liberals forcefully called for new regulation, seeking to restore stricter oversight requirements on medium-sized banks — rules that were unraveled in 2018 over some lawmakers’ objections. Still others in the party have sought to institute new fees on banks to cover a wider array of deposits in the event of a future financial crisis.
“I was against it then, and I hate to say I told you so, but I told you so,” said Rep. Katie Porter (D-Calif.), referring to the 2018 rollback. “These banks are big enough. They may not be the biggest, but they are big enough.”
Even some of the party’s moderates signaled new interest in reconsidering federal banking rules. Rep. Josh Gottheimer (N.J.), the leader of the centrist Problem Solvers Caucus, led Democrats on a letter Sunday that said they were “unnerved” by the situation, adding that the government should use “all necessary regulatory tools to encourage a sale of the institution” and consider “additional oversight measures to ensure that a bank’s asset mix can adequately provide liquidity during a stress event.”
By Monday afternoon, many Republicans were still learning about the contours of the administration’s action.
Sen. Bill Hagerty (R-Tenn.), a member of the chamber’s banking committee, took issue with Biden’s contention that the fund used to address the Silicon Valley Bank collapse did not come from taxpayers. The financial institutions that pay into the fund, he said, are also “taxpayers,” making it “just a matter of semantics from my standpoint.”
And Hagerty voiced concern that Silicon Valley Bank executives and state and federal officials, including the San Francisco Fed, may have missed key warning signs that might have prevented the crisis. “I think, in my view, the real question is who was asleep at the wheel?”
“Everybody is just getting up to speed,” he said of his GOP colleagues.
Meanwhile, former president Donald Trump and Florida Gov. Ron DeSantis (R), who is widely expected to challenge Trump for the GOP nomination, both suggested without evidence that an excessive focus on social justice contributed to the bank’s meltdown.
“This bank, they’re so concerned with DEI and all kinds of stuff, I think that really diverted from them focusing on their core mission,” DeSantis said over the weekend on Fox News, referring to the diversity, equity and inclusion initiatives he has targeted in Florida.
On Truth Social, Trump shared another user’s assertion that “Woke banks will fail” and that the government was bailing out “woke big tech” while neglecting people affected by the recent train derailment in East Palestine, Ohio.
Talking to reporters, Trump rejected the idea that the rollback of banking regulations on his watch contributed to the banks’ collapse, saying rather that it strengthened the banks.
“No, the regulation rollback was a good thing — that helped it,” Trump told reporters. “In other words, you’d have a lot more banks right now in trouble because they were getting eaten alive by regulation.” He also argued that high interest rates were a major factor in the banks’ failure.
Nikki Haley, who is also running for president, wrote on Twitter that the federal action amounted to a bailout because all bank customers are “on the hook” if the Deposit Insurance Fund runs out of money.
Vivek Ramaswamy, a tech entrepreneur running for the Republican nomination, said the intervention amounted to “a bailout of all the Silicon Valley tech start-ups.”
“Anytime you’re rewriting the rules after the fact to help someone who suffers the downside from taking a calculated risk, that’s a bailout,” he said in an interview. “It is a lie that this is not a bailout.”
And Sen. Tim Scott (S.C.), the ranking Republican of the Senate Banking Committee who is considering a presidential bid, said on Fox News that the Biden administration’s move to insure deposits above $250,000 “means that the most sophisticated investors are now gonna have the insulation of the federal government.”
Still, Democrats remained optimistic Monday that the federal government took the right step to stave off a broader financial crisis and protect Americans’ jobs and small businesses — and that is the message they would tell voters.
“How I see it, and how I think the public is going to see it, is that this was a failure of oversight and a failure of management at the bank,” said Rep. Adam B. Schiff (D-Calif.) said. He pointed to new legislation, announced Monday, promising to hold “bank executives accountable when they maximize their own profits by engaging in risky management” that could harm the economy.
Despite the action by the federal authorities, the financial services industry continued to take a hit Monday. One key metric of bank stocks, the SPDR S&P Bank index, dropped by 10 percent by the close of trading. Salt Lake City-based Zions Bancorporation lost 25.7 percent, PacWest Bancorp dropped 21.1 percent, Western Alliance Bancorporation dropped 47.1 percent and Texas-based Comerica bank shed 27.7 percent.
Big banks experienced smaller declines, as some analysts suggested larger and more diverse banks would see an influx of deposits at the expense of smaller ones. Bank of America lost 5.8 percent, Wells Fargo shed 7.1 percent, and Citibank slumped 7.5 percent.
Hannah Knowles and Maeve Reston contributed to this report.’