The NPR Politics Podcast - Biden: Government To Ensure Customers Can Withdraw Money

Episode Date: March 13, 2023

The Biden administration has announced that customers of Silicon Valley Bank will have full access to their deposits, an extraordinary move by federal officials to backstop billions of dollars in uninsured money. In remarks Monday morning, the president indicated he was confident in the banking system after a few high-profile bank closures last week.This episode: White House correspondent Tamara Keith, national political correspondent Mara Liasson, and chief economics correspondent Scott Horsley.The podcast is produced by Elena Moore and Casey Morell. It is edited by Eric McDaniel. Our executive producer is Muthoni Muturi. Research and fact-checking by Devin Speak.Unlock access to this and other bonus content by supporting The NPR Politics Podcast+. Sign up via Apple Podcasts or at plus.npr.org. Giveaway: npr.org/politicsplusgiveaway Connect:Email the show at [e-mail] the NPR Politics Podcast Facebook Group.Subscribe to the NPR Politics Newsletter.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

Hi, this is Meg calling from Norfolk, Virginia, where I am spending time with my daughter, Marty, and my Shiva Inu, Walter, while I get ready for my night shift where I work at the Norfolk International Terminal as an assistant operations manager. This podcast was recorded at 1.05 p.m. Eastern Daylight Time on Monday, the 13th of March. Things may have changed by the time you hear this, but when things are certain, I will be happy to be home cuddling with my favorite two people. All right. Enjoy the show. Hey there, it's the NPR Politics Podcast. I'm Tamara Keith. I cover the White House. And I'm Mara Liason, national political correspondent.

We've also got Scott Horsley here, NPR's chief economics correspondent. Good to be with you. So today we are talking about two high profile bank failures that have happened in the last few days. President Biden spoke this morning to reassure Americans that the financial system is strong. Today, thanks to the quick action of my administration over the past few days, Americans can have confidence that the banking system is safe. These were the first bank failures in the U.S. since 2020. And the meltdown of Silicon Valley Bank is the biggest since the financial crisis of 2008 and the second largest in U.S. history. Scott, you and I both covered the financial crisis in 2008. And this moment does feel different. But anytime a bank fails, it is quite unnerving. So let's just start with the beginning here. What happened with Silicon Valley Bank?

Yeah, Silicon Valley Bank, as the name suggests, has a lot of customers that are tech companies, including a lot of startups. Many of them had a lot more money in the bank than the quarter million dollars that's usually covered by deposit insurance. Of course, the tech sector has fallen on hard-ish times lately. So some of those companies were drawing more money out of the bank. And as a result, Silicon Valley Bank had to sell some of its government bonds at a big loss. When word of that loss spread, more customers got nervous. They tried to take their money out, and it resulted in a classic bank run. And the reason that they lost money on their bonds is because the Fed has been raising interest rates to try to rein in inflation. Can you explain the,

I don't know if it's physics or math or what, but can you explain how that works? It's gravity, basically. If you've got bonds paying a lower interest rate and the prevailing interest rate goes up, then your bond becomes less valuable. And so Silicon Valley Bank had a lot of its assets tied up in government bonds that were losing money, at least on paper. That's not a big problem unless you suddenly have to sell a lot of those bonds at one time. And that's what happened here. So this is a classic bank run. This is not like what happened in 2008 where banks were investing in things they didn't even understand, all those exotic derivatives.

This is just a bank run, right? Generally speaking, investing in government bonds, treasury bonds, is about the safest thing you can do. But when interest rates rise, you are at risk of losing money. And again, if you hold the bond to maturity, you're made whole. But if you have to sell off the bonds at fire sale prices, then you can be in trouble. And in this case, that was just compounded by this very wired customer base where news spread at the speed of the internet and largely uninsured. So they had a lot to lose and they all tried to take their money out at one time. But the New York Bank failure is different. That was a crypto failure,

signature bank, had Barney Frank on board, big liberal regulator. It lent money to Jared Kushner and Donald Trump's golf course. That is not connected to the Silicon Bank failure, correct? It's not connected except temporally. And obviously the collapse of Silicon Valley Bank probably rattled customers at Signature Bank and raised the risks of a run there as well. As with Silicon Valley Bank, a lot of customers at Signature Bank had more than the quarter million dollars there. So they had a lot at risk. And New York regulators shut down Signature Bank over the weekend to prevent the kind of run we saw at Silicon Valley last week. Now the FDIC has stepped in and said they're going to make customers at both of those banks whole. So even if they had more than a quarter million dollars

on deposit, they'll get all their money back. And what's more, the Federal Reserve has created this new lending facility so other banks who might find themselves in a similar circumstance can borrow against those government bonds and don't have to sell them at fire sale prices. And this had been a question. On Friday, when Silicon Valley Bank stopped doing wire transfers and regulators swooped in, there was this question hanging over the weekend about what was going to happen with those deposits, all of that money that people had deposited into that bank. Was it gone or was some big chunk of it gone? Would they ever be able to get it back? President Biden spoke to this this morning early before the markets opened.

All customers who had deposits in these banks can rest assured, rest assured they'll be protected and they'll have access to their money as of today. That includes small businesses across the country that bank there and need to make payroll, pay their bills and stay open for business. No losses, and this is an important point, no losses will be borne by the taxpayers. Let me repeat that. No losses will be borne by the taxpayers. Instead, the money will come from the fees

that banks pay into the deposit insurance fund. Right, so we've been talking about the FDIC, or when you make a deposit in the bank, it's FDIC insured up to $250,000. So, Mara, the White House, the president, the Treasury Department, everyone is really trying really hard to make it clear that this is not a bailout. What are the politics here? Why are they being so careful to say that? Because there's nothing more politically toxic on the right or left than a bailout.

People don't want to see taxpayer money bailing out rich people, whether they're people who invested in subprime mortgages or they're people in Silicon Valley who run big tech companies. This is how we got the Tea Party and Occupy Wall Street from the last giant bailout. Now, what's happening now is an infinitesimal compared to 2008, but the politics of this on the surface could be very perilous for the White House. Anything that looks like rich people are getting a better deal than ordinary middle-class people is bad for the party in the White House.

So, Scott, how does this not cost taxpayers money? And is this really not a bailout? What is the difference between a bailout and not a bailout? A bailout is when it's something you don't want to have happen. And prudent protection to safeguard the integrity of the financial system is when it's something you do want to have happen. You mean you're saying it's just semantics? It's in the eye of the beholder. But the way you don't have taxpayer money going in is by saying that the money to compensate any deposits is going to come from that insurance fund

that the banks pay into. As we said, usually that only covers up to a quarter million dollars per account. In this case, they've waived that limit, the government has, and said they're going to cover all those deposits. The goal here was to prevent every customer at every other mid-sized bank with more than a quarter million dollars from thinking, uh-oh, is my money at risk, and having a much bigger, more widespread problem. You know, President Biden made his remarks in the Roosevelt Room this morning. He's trying to avoid this sort of nationwide loss of confidence in the banks that President Franklin Roosevelt had to deal with in the Great Depression. Didn't the president also say that the managers of the banks would be fired and that it was the stockholders and the shareholders who would end up paying for this?

Is that something that maybe Washington has learned to do differently since 2008, where it seemed like all the perpetrators got off scot-free. That's right. The president stressed that the people who made bad decisions, whose bad management may have contributed to this, are no longer running the show. And the investors in these banks who put their money at risk were not going to be made whole. So that's another reason why the White House says this is not a bailout. All right. We are going to take a quick break. And when we get back, could there be new regulations on banks?

Mardi Gras, but make it Republican politics. That's kind of what the Conservative Political Action Conference is like, according to Don Gagne, our veteran political correspondent. You never forget your first CPAC. And I remember wandering around the halls thinking, you know, you're not at the White House anymore. We take you behind the scenes of CPAC in our recent bonus episode for NPR Politics Podcast Plus listeners. If that's you, thank you for your support. If it's not, it could be. You can sign up and support NPR in the process at plus.npr.org. And we're back. And I want to delve, if we can, into the root causes here. Scott,

is this a systemic risk? Was what happened with Silicon Valley Bank something that could happen with other banks too? Or was it specifically tied to Silicon Valley Bank and Signature Bank and decisions they made? There are definitely some unique circumstances here. As we say, Silicon Valley was, a lot of their customer base was tech companies, which collectively have come on harder times right now. A lot of their customers had more than the typically insured amount of money on deposit.

So both of those were unusual risks. But that's not to say this is a complete black swan and that every other bank was immune from these kinds of problems. And that's why I think you've seen both the FDIC and the Fed step in so aggressively here to try to staunch this quickly so that the problems don't spread to other banks. Now, going back to 2008 and the financial crisis, there was legislation passed that was meant to avoid having banks fail or having a contagion in the U.S. financial system. That legislation was called Dodd-Frank. Is the system in a better place now? Did that legislation do what it was supposed to do? Yes and no. Dodd-Frank has certainly created a more stable banking system. That's why we aren't seeing a nationwide meltdown. But over the years, the regulations imposed in Dodd-Frank have also been watered down to some extent. And Silicon Valley felt the effects of that. Silicon Valley managed to avoid some stricter regulation that they would have originally been

subject to because of some of those changes that were made over the years. And I should say, just last week, you had Republicans on the Senate Banking Committee that were pounding on the Federal Reserve chairman during his regular testimony not to have the Fed crack down too hard on regional banks. The Senate Republicans were insisting very, very strenuously that the Fed need to go easy on these regional banks. Those are comments that may not wear so well now that we've seen the meltdown of Silicon Valley Bank. But so the bank regulation is stricter than it was before the financial crisis, but it's less strict now than it was in the immediate aftermath of the financial crisis. President Biden today talked about this and sought to assign some blame to former President Trump. During the Obama-Biden administration, we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank

law to make sure that the crisis we saw in 2008 would not happen again. Unfortunately, the last administration rolled back some of these requirements. All right. So, Scott, is that a fair criticism? It is a fair criticism. We should say, too, that it was not strictly Republicans who rolled back those requirements. There were Democrats on board with that as well. We will see if this latest episode causes some lawmakers to get religion about the reason why bank regulation can be a beneficial thing. I don't know, Mara. Do you see a sudden new hunger for bank regulation? And also, like these regional banks, you know, probably every senator has a regional bank in their state or, you know, these sorts of banks probably have an outsized influence over their politicians. That's true. I think that when you have a Republican House that

is still wedded to a large extent in deregulation of almost everything, you're not going to see more banking regulation right now. However, you are going to see the same old big debate over the role of government. How much regulation should there be? Some banks would welcome being regulated if it meant that they were also not going to be allowed to fail. But I think the initial political back and forth on this is pretty interesting. The easy hot take is to say this hurts Biden. He presided over a bank failure. But then you see the big split in the Republican Party. You see Republicans like Mitt Romney saying that the government did the right thing. You see Ron DeSantis and Marjorie

Taylor Greene blaming this on wokeism, saying Silicon Valley Bank invested too much in carbon neutral funds. I think we're in a new era when it comes to the role of government. There are a lot of Republicans that are very willing to regulate corporations. Ron DeSantis certainly did it with Disney, that do things they don't like. And I think you're not going to see a big appetite for more laws regulating banks, but I think you're going to see populist currents running crosswise in both parties. We should say, too, there are lots of libertarian-leaning folks in Silicon Valley who generally don't like to see the government play a heavy-handed role in the economy until it's their deposits that are suddenly at risk, and then they're happy to see the feds ride to the rescue.

They don't want to be regulated, but they do want to be bailed out if necessary. Or rescued. Or rescued, as the case may be, right. One thing this has shown, the Republicans, in calling for deregulation insist that banks shouldn't be regulated in sort of a one-size-fits-all approach. And they often say that smaller banks need less regulation and they're really big banks that can bring down the whole economy. What the failure of Silicon Valley Bank shows is that there are any number of banks that are not too big to fail but that are big enough to cause a lot of problems when they do fail. So is this it? Was it one stressful weekend and then the story is over? The White House certainly hopes so. I think that the politics of this will depend on how long it

goes on and how many other banks might follow in the wake of Silicon Valley. I think if it's a story that's contained to just a couple of days, I think the politics of this are pretty much awash. But, you know, every kind of crisis, whether it's environmental or financial, lands at the feet of the president. So there's always peril for Biden here. Scott Horsley, friend of the pod and chief economics correspondent for NPR.

Thank you. Great to be with you. I'm Tamara Keith. I cover the White House. And I'm Mara Liason, national political correspondent. And thank you for listening to the NPR Politics Podcast.