Is it a bank bailout? At SVB, the White House fights comparisons with 2008, when Biden confronts the banking crisis
WASHINGTON – The White House is working to avoid any mention of a “bailout” as President Joe Biden defends his actions to save depositors in two failed banks to avert one large-scale financial crisis.
But Republican critics and some economists said that’s actually what the Biden administration was doing by stepping in to guarantee that depositors in Silicon Valley Bank and Signature Bank paid in full after the collapse of the banks.
“Bilout” became an unpopular word in politics during the 2008 financial crisis, when President George W. Bush and Congress bought failing assets from major banks and other financial institutions ahead of the Great Recession. Many Americans reacted angrily, accusing billionaire executives of getting taxpayer-funded handouts in exchange for their own bad decisions.
Officials in the Bush and Obama administrations said the 2008 intervention was necessary to prevent an even bigger disaster that would have harmed scores of American households.
Fifteen years later, Biden is fighting comparisons to 2008 as he seeks to ease Americans’ concerns about the stability of the US banking system.
Shares fall: The stock market ended lower on Wednesday, partly paring some of the earlier losses triggered by renewed fears of a banking crisis. The S&P 500 fell about 0.7% and the Dow Jones Industrial Average fell 281 points, or 0.87%.
Extraordinary action: The Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation took the extraordinary step this week of guaranteeing deposits at Silicon Valley Bank and Signature Bank after regulators shuttered both. SVB had $175 billion in deposits. Signature had $89 billion.
How it works: Money to repay depositors will come from the Deposit Insurance Fund, which is financed primarily by fees assessed to banks, although it is backed by the full faith and credit of the US government. The fund traces back to President Franklin D. Roosevelt’s New Deal after the Great Depression to protect depositors when their banks failed.
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Why the White House Says: ‘This Is Not a Bailout’
A bailout generally refers to government assistance to ensure that a financial institution or business does not collapse or go bankrupt.
Biden cited the source of the bailout money — bank premiums and interest earned on funds invested in U.S. government obligations — to argue that his administration’s strategy is not a bailout because taxpayers are not on the hook.
“Let me repeat that: No loss will be borne by the taxpayers,” Biden said Monday.
More: ‘It’s a wake-up call’: Advocacy groups, lawmakers highlight law they say led to SVB collapse
In addition, Biden emphasized that the banks’ investors are not protected and their management will be fired.
In contrast, the banks themselves were saved with the bank bailout in 2018, while the government took the stake. Congress voted to authorize the Treasury Department to buy up $700 billion in toxic assets from failed banks — a very different arrangement from Biden’s plan.
“This is not a bailout,” White House press secretary Karine Jean-Pierre said. “This is not 2008 at all.”
What do economists say?
Most economists said Biden’s intervention is not a bailout in the traditional sense.
“I don’t think making sure depositors are made whole is a bailout,” said Mark Zandi, chief economist at Moody’s Analytics, noting that banks’ shareholders are being wiped out, owners are losing money and management is out of a job. “I don’t want to call this a bailout. I want to call this sensible policy.”
Republicans have criticized Biden’s actions as a “bailout.” Late. Josh Hawley, R-Mo., the Biden administration said “have found a way to get taxpayers to pay for a bailout without taking a vote on it.”
“Obviously it’s a bailout,” New Hampshire Gov. Chris Sununu said, arguing that the banks’ depositors should have been more aware of the risks. “They chose to put all their money in one bank that made terrible decisions, turned a blind eye and lost their money.”
Still, even some on the left say it’s a fair label.
More: Was Silicon Valley Bank Too ‘Wake Up’? Why Republicans Blame Collapse on ‘Diversity Claims’
“Yes, it was a bailout,” said Paul Krugmana liberal economist and New York Times columnist who wrote that the source of the funds “does not change the reality that the government stepped in to bail out depositors who had no legal right to demand such a bailout.”
Neil Barofsky, who oversaw the bank bailout, known as the Troubled Asset Relief Program, for the Bush and Obama administrationstold NPR“If your definition is government intervention to prevent private losses, then this is certainly a bailout.”
Reach Joey Garrison on Twitter @joeygarrison.
This article originally appeared on USA TODAY: Banking crisis 2023: Biden fights ‘bailout’ comparisons to 2008