When the failure of Silicon Valley Bank sends shockwaves throughout the financial industry, speculators are assigning blame.
The analogous 2008 banking crisis is still regarded as a worldwide catastrophe, and the aftermath of the west coast banks meltdown is being closely monitored.
First banks were associated with business and technology enterprises, particularly startups, and the bitcoin situation is believed to be a cause.
This week, Signature Bank in New York also collapsed, and banking insurance measures have announced that all monies would be insured in excess of the prearranged $250,000 limit. Despite assertions that government funds will not be required, it remains unclear which monies will be utilized to support the bailout.
AP reported today that European banks are facing instability as the normally steady Swiss bank Credit Suisse is in difficulty and a financial powerhouse will acquire it for $3.25 billion. From its founding in 1856, the bank has been a foundation of Swiss banking stability.
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in 2021, a seedy money laundering case, and waning customer confidence in the last few months saw billions being withdrawn from the bank.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.”
When banks fail and bailouts commence, the root cause of the issue is on everyone’s mind. This is the most significant bank failure since the 2008 financial crisis.
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.”
According to the New York Post, Chinese businesses have long depended on SVB, which had built relationships with local government officials in Shanghai, for venture capital money when traditional U.S. banks rejected them. Guanchun Wang, the founder of the Beijing-based software business Laiye, commented, “Silicon Valley Bank has played an instrumental role for us.”
Some observers believe that Biden’s guarantee that no government monies will be used to bail out the banks creates a political no-win position for his administration, given that Biden opposes private mergers. Obviously, the president is stating that everything is OK and that the underlying banking system is “safe and secure” despite the previous catastrophes.
According to the LA Times, Biden stated in remarks on Monday that the expenses would not be borne by taxpayers but rather by fees paid by banks to the Federal Deposit Insurance Fund. This normally protects up to $250,000 per account, but the Fed has agreed to replace any lost funds.
The Times said that Biden also pledged to hold accountable anyone responsible for the bank’s failure and stated that the bank’s stockholders would not be shielded. The FDIC has ousted SVB’s senior executives, and Tim Mayopoulos is now the bank’s CEO. Mayopoulos is a software executive who assisted Fannie Mae in through the financial crisis while serving as its chief executive from 2012 to 2018.
Biden, though, unsurprisingly blames former President Trump for the crashes, notably his decision in 2018 to relax banking regulations implemented in response to the 2008 financial crisis.