Joe Biden’s Big Test: Can He Show Competence to Avert a Banking Crisis?

In 2016, when the new Trump administration was all set to relax strict banking rules, Joe Biden (who was the Vice President then) spoke up and tried to stop them. He said that if we don’t keep some of the regulations in place – put in place by Democrats after a big financial crisis – banks will continue to gamble with people’s money and hurt the middle class.

President Biden said in a speech that we can’t return to the times where financial companies would take big risks, expecting to get saved with taxpayers’ money when they can’t succeed.

President Biden is dealing with a banking crisis and he wants everyone to know that it’s under control. Bank bosses will be fired, customers’ savings are protected, and people don’t have to worry about paying money for this crisis. This message is being sent out to make sure people don’t feel worried or scared about what’s happening in the financial sector.

President Biden is thinking about running for a second term, and this will prove that his presidency offers better leadership than before with President Trump. The ability to prevent the spread of economic problems from one institution to another will be an important test showing if he can bring stability instead of chaos.

People in the Republican-controlled House and some moderate Democrats don’t want the rules mentioned in a 2018 law to become more strict, like what President Biden has called for. They think he is trying to do a ‘bailout’ but conservative candidates running for President in 2024 have labeled it as something else.

Privately, Joe Biden (the president of the United States) has been clear that the government’s help won’t be like it was in 2008 when Congress took a lot of money from taxpayers and gave it to big banks that were so important that they couldn’t be allowed to fail. Someone who works in the White House and is not allowed to tell people about private discussions said this.

The government had to take action this time because of the bad decisions made by the bank’s bosses due to how it could affect innocent customers and the economy. Additionally, President Biden was determined that those in charge of the banks need to be held responsible.

President Biden said on Monday that people running the bank should be fired if their institution gets taken over by the Federal Deposit Insurance Corporation.

On Monday, Biden said that taxpayers don’t need to pay for any penalties on two failed banks. Rather, there is an insurance fund which is looked after by fees paid by the bank. So customers and small businesses who had money saved in these penalized banks will get protected but investors won’t get anything.

Biden added that “investors knowingly took a risk and when their bet didn’t pay off, they lose their money – that’s how capitalism works”.

Maxine Waters, a politician from California, told President Biden that he must learn from past financial mistakes, as she knows firsthand how serious they can be. Over the weekend, the White House ensured her that he was taking this seriously and is doing his best to prevent future collapses.

“He was mostly worried about protecting the people with money in banks and stopping the spread of any financial trouble that could cause problems for the banking system of our country,” Waters said.

On Friday, the government took over Silicon Valley Bank after lots of customers suddenly tried to take all their money out in a few hours. This is called a ‘bank run’. Important people like the Treasury Secretary Janet Yellen are keeping an eye on things. News outlets reported that companies had problems dealing with money because of both banks closing down. This caused worry for many other banks around America too.

By Sunday night, the Treasury Department, Federal Reserve, and FDIC announced that people who own accounts at Silicon Valley Bank and Signature Bank in New York could get their money back. President Biden was getting updated about the situation in this time by talking with his Chief of Staff Jeff Zients, National Economic Council Director Lael Brainard, and Secretary Yellen.

President Biden spoke to some economists that the White House is not saying who these people are.

Government officials were trying to explain things over the weekend to Congress members, but some Republicans did not get an invitation to a Sunday phone call with Treasury and FDIC. After seeing this, the Republicans complained and Senator Chuck Schumer suggested including them. The administration put together another call just for the Republican Senators on Monday afternoon.

During a call, Republican senators expressed their worries that the tech companies were being helped in a way which could hurt the local banks of their home states. This is because those banks would need to pay new fees that will replenish the insurance fund used by the government to help people with money in the two failed banks.

The word “bailout” will be linked to the White House for a while. People running for president in 2024 are saying that people who use banks will still have to pay even if the government doesn’t give out money. Some experts think if banks get charged more by the government, like higher interest rates on loans, then customers will end up paying it as well.

Nikki Haley said Joe Biden is trying to make it look like he’s not bailing out banks, but she thinks it actually is a bailout. This means that customers from other banks are paying for the mistakes made by Silicon Valley Bank and if the insurance fund runs out of money, then bank customers will have to pay for it.

Sen. Tim Scott, who is from South Carolina and may run for president one day, said that he doesn’t like the idea of governments being too involved in helping out banks when they get into financial trouble. He believes this encourages the banks to take risks, because they know somebody else will help them if there’s a problem.

The White House and other people in charge say that what they are doing is not a bailout. But Harvard University economist Kenneth Rogoff said that although it’s right for the government to help make sure two banks can cover their customers’ deposits, using money like this really counts as a bailout.

The government promised during the financial crisis that it wouldn’t help out people who hadn’t insured their money and wouldn’t help out banks. But now, they’ll be guaranteeing almost everything, which means they are still giving people and institutions support.