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WASHINGTON (AP) — In 2016, Vice President Joe Biden warned against efforts to unravel banking regulations that Democrats had fought to implement following the nation’s financial crisis, just as the emerging Trump administration was determined to loosen those strict banking rules.
“We can’t go back to the days when financial companies take massive risks with the knowledge that a taxpayer bailout is around the corner when they fail,” Biden said in a speech at Georgetown University in the waning days of the Obama administration.
Now there's a banking crisis on his watch as president, and Biden is moving aggressively to assure the public that it is contained, bank executives will be fired, deposits are safe and taxpayers aren't on the hook — measures also designed to calm jittery financial markets.
As he contemplates an announcement for a second term, Biden's ability to avert a contagion among financial institutions will test his contention that his administration represents competence and stability in contrast to the chaos of the Donald Trump years.
His call for additional regulation, though, is likely to run into stiff resistance in the Republican-controlled House and even among some moderate Democratic lawmakers who joined Republicans to loosen some rules in a 2018 law — not to mention criticism from the still-forming 2024 Republican field that has already labeled his actions a bailout by just another name.
Unlike in 2008, Biden was insistent that bank executives had to pay a price, said the official, granted anonymity to discuss internal White House deliberations.
But administration officials believe that this time they had to act substantively despite bad decision-making by bank executives, given the economic risks and the potential impact on customers who did nothing wrong.
“They knowingly took a risk and when the risk didn’t pay off, investors lose their money,” Biden said. “That’s how capitalism works.”
On Monday, Biden also stressed that taxpayers will not bear the cost of his administration's penalties on the two failed banks, instead tapping into an insurance fund that is paid for by bank fees. And while customers and small businesses who stashed their money with the penalized banks would be protected, Biden emphasized that investors would not.
Regulators put Silicon Valley Bank under FDIC control on Friday afternoon after panicked depositors rushed to withdraw all their funds within a matter of hours. That's a bank run. Top administration officials including Treasury Secretary Janet Yellen stressed that they were monitoring the situation, as reports of companies struggling to figure out how to manage their finances amid the two banks' shutdown rippled throughout the media and threatened regional banks around the country.
Sen. Tim Scott, R-S.C., the top Republican on the Senate Banking Committee who is eyeing a presidential bid, also criticized what he called a “culture of government intervention,” arguing that it incentivizes banks to continue risky behavior if they know federal agencies will ultimately rescue them.
White House and other administration officials are insisting their actions are not a bailout. But Harvard University economist Kenneth Rogoff said while he agrees that the government is rightly protecting the two banks' depositors, the money spent to make them whole is “certainly a bailout.”
There, several GOP senators conveyed their concerns to administration officials that Silicon Valley executives were being rescued in a way that could ultimately harm community banks in their home states, according to a person with knowledge of the call who was granted anonymity to discuss a private conversation. That would be because these banks would be assessed new fees to replenish the insurance fund that the administration tapped to aid the two failed banks' depositors.
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Republicans angling for the 2024 presidential nomination are already arguing that customers will ultimately bear the costs of the government's actions even if taxpayer funds weren't directly used. Some economists believe more fees levied on banks will just get passed onto consumers, such as increased rates for loans.