WASHINGTON – President Joe Biden knew earlier this month that he needed to project command and confidence as he prepared to deal with a brewing banking crisis that would rattle financial markets.
He had learned that lesson the hard way a decade and a half ago, during the nation’s worst financial crisis since the Great Depression.
Just days after he became vice president in 2009, amid a financial crisis that had started the previous year, Biden mused that even if the new administration did everything right, “there’s still a 30% chance we’re going to get it wrong.” The comment did little to bolster economic confidence, and Biden's boss, President Barack Obama, had to fix the blunder by clarifying that the then-vice president had not meant to cast doubt on the wisdom of the administration's rescue plan.
In today's crisis, Biden seems intent on avoiding any ambiguity. He has sought to reassure financial markets, make sure banking customers have access to their money and, just as important, try to convince the public that government intervention to rescue the failing banks is not a bailout.
“Americans can have confidence that the banking system is safe – your deposits will be there when you need them,” Biden said from the White House Roosevelt Room as he outlined steps his administration would take to quell the crisis.
“No losses,” he added, “will be borne by the taxpayers.”
Whether Biden's getting it right this time remains to be seen.
Biden’s handling of the economy has been his biggest test as president and is what he’ll be judged on most if he runs for reelection as expected.
A new poll illustrates what he’s up against. Less than one-third of the public approve of Biden’s handling of the economy, according to an Associated Press-NORC Center for Public Affairs Research poll released Thursday that showed his overall approval rating close to the lowest point of his presidency. Even among Democrats, there’s a 13-percentage-point gap in how Biden is viewed overall versus his economic stewardship.
The poll was taken after the failure of two regional banks – Silicon Valley Bank and Signature Bank – this month. The threat that the failures could spread to other financial institutions convinced Biden of the need to step in. The Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation took the extraordinary step last week of guaranteeing the deposits at the banks after regulators closed both.
And while Treasury Secretary Janet Yellen said Tuesday that the “situation is stabilizing,” the administration is not out of the woods.
The banking meltdown complicated the Federal Reserve’s efforts to tame inflation by raising interest rates, and stocks fell Thursday after Fed Chair Jerome Powell refused to commit or hint at rate cuts later this year.
Still, Powell and the White House said the U.S. can get inflation back to acceptable levels while avoiding a recession.
“We do not see a recession or a pre-recession,” White House press secretary Karine Jean-Pierre said Wednesday. “We see a strong economy.”
Yellen calls banking system `sound': But says U.S. could aid other small banks if needed amid SVB crisis
Memories of 2008 financial collapse
For many, the collapse of the Silicon Valley Bank and Signature Bank revived painful memories of the financial collapse of 2008. Biden and members of his inner circle were well aware of the comparisons as they huddled in the Oval Office on Friday, March 10, to consider their options.
Yet Biden and his team felt that what was happening this time was vastly different from 2008. Senior banking executives responsible for the banks’ difficulties would be fired. This time, the government intervention would not involve taxpayer dollars but would instead rely on bank premiums and interest earned on funds invested in U.S. government obligations.
Over the next 48 hours, Biden’s team worked behind the scenes to analyze the latest data they were getting and to figure out a course of action. Biden spoke multiple times with Yellen. He talked with California Gov. Gavin Newsom about the collapse of Silicon Valley and its impact.
Among the administration's chief concerns was stopping widespread panic if people with deposits at those two banks were unable to access them on Monday morning, sparking fears of a run on other banks if depositors rushed to cash out their accounts, a senior White House official who spoke on the condition of anonymity told USA TODAY.
"This idea that if you put money in the bank that you should have access to that, that was really important to him," the White House official said, referring to Biden's approach to handling the crisis.
One of the possibilities discussed was that another financial institution might step in and buy Silicon Valley Bank. When that failed to materialize, regulators knew that a public announcement by the president would be needed about the steps to be taken to stabilize the financial system and avoid wider panic.
It’s not clear whether Biden can avoid the taint of being accused of bailing out banks. Biden takes pride in the role he played in the Obama administration in – as he wrote in his memoir – “shaping and executing the plan that helped President Obama take the country from crisis to recovery.”
But he also got a firsthand look at the political unpopularity of the government purchasing failing assets of big banks and other financial institutions ahead of the Great Recession.
“It seems his communications are greatly informed by that experience,” said Steven Kelly, an expert on financial crisis management at Yale University's program on financial stability. “He was quick to underline that this is not a bailout. Stockholders are being penalized. This is really about protecting the average depositor.”
'We've got to act with speed'
Notwithstanding Biden's response, criticism has come from both the left and the right.
South Carolina Sen. Tim Scott, the top Republican on the Senate banking committee, who is considering a presidential bid, told Fox News the decision to insure all deposits at SVB is “the greatest form of corporate cronyism that we've seen in a very long time.”
Vermont Sen. Bernie Sanders, who had accused Biden at a presidential campaign event in 2020 of having bailed out “crooks on Wall Street,” warned about “more socialism for the rich.”
California Rep. Ro Khanna, a leading progressive Democrat whose district is in the heart of Silicon Valley, said it’s important for Biden to keep pushing to hold executives of the failed banks accountable and for stronger regulation.
“But I think he will do those things,” Khanna said, and will “come out looking well because he took the decisive action and showed leadership in the timeframe that was necessary.”
Khanna had urged the administration to act quickly, both publicly calling out Yellen on CBS’ “Face the Nation” and privately buttonholing Steve Ricchetti, a top Biden adviser, at the annual white-tie Gridiron Dinner attended by politicians and journalists held the weekend the administration was weighing its options.
“I understood, because I represent Silicon Valley, how fast the situation was unfolding,” Khanna told USA TODAY. “I understood how many small businesses were being pressured to move their deposits.”
Khanna had been frustrated with his conversations with FDIC officials who he thought were “hiding behind bureaucratic language.” And he wanted to impress on the White House the importance of not just insuring every deposit at SVB but announcing that decision before the markets opened on Monday.
“Steve Ricchetti got it,” Khanna said. “He said: `Well, I understand. I get we’ve got to act with speed.’”
Speed was particularly important, according to Kelly, the Yale expert on financial crisis management, because changes put in place after the 2008 financial crisis limited the ability of the executive branch, the Federal Reserve and the FDIC to keep a crisis at bay.
“It’s incredibly important that they don’t let a fire burn for too long before they respond to it,” Kelly said. “They did the right thing from a risk management play of looking at the risks that were out there and saying, `OK, while this bank might not be the biggest bank, it might not be super-systemic, we don’t have the tools we need if it dominoes to the next big bank.’”
But Aaron Klein, who worked on financial regulatory reform at the Treasury Department during the Obama administration, believes it wasn't the right decision to protect all SVB depositors.
“The government isn’t here to bail out wealthy venture capitalists who put tens of millions of dollars in a troubled bank,” he said.
Klein doesn’t fault Biden for that, pointing the finger instead at the independent Federal Reserve, which, he said, failed to properly supervise SVB.
Blaming Biden, Klein said, would be like asking what the paramedics could have done differently to help a heart attack victim after his cardiologist had prescribed a McDonald’s diet.
And Klein gives Biden credit for wanting to hold bank executives accountable.
Hearings the House and Senate will convene next week will illuminate whether the administration deserves any blame, said Doug Heye, a Republican political strategist who worked in Congress and in the George W. Bush administration.
“What did this administration do right or wrong? Was it just this administration, or were there mistakes that were made by the previous administration, warning signs that were missed or ignored?” Heye said.
Whether the crisis becomes front of mind for voters will depend on how deep the problems are and how long they persist.
“We just need to wait and see,” Heye said, “how all of these issues surrounding banking play themselves out over the coming not just weeks but months.”
Maureen Groppe and Michael Collins cover the White House. Follow Groppe on Twitter @mgroppe and Collins @mcollinsNEWS.
This article originally appeared on USA TODAY: SVB, Signature Bank collapse puts Joe Biden's leadership to the test