The crash of two US banks brings back dark memories of the 2008 financial and banking crisis. Washington reacted quickly to prevent investor panic. Who is to blame for the misery?
US President Joe Biden has reassured customers after the closure of two banks. “Americans can rest easy, the banking system is safe. Your deposits are safe,” Biden said. Customers of the institutes concerned would have access to their savings from Monday. This also applies to small businesses. Taxpayers should not bear the cost of deposit insurance. The money comes from a deposit insurance fund that all banks pay into, Biden said.
However, the protection does not apply to investors. They would have to bear their own risk. “That’s how capitalism works,” Biden said. In addition, the managers of the banks placed under state control would be fired. “If the bank was taken over by the Deposit Insurance Agency, the people who ran the bank shouldn’t work there anymore,” the president stressed.
unrest in the markets
On Friday, the Silicon Valley Bank (SVB), which specializes in start-up financing, was temporarily closed after a failed emergency capital increase and placed under state control. This caused unrest around the world. Other banks also came under pressure on the stock exchange. New York-based Signature Bank also closed on Sunday.
The German branch of the SVB based in Frankfurt was also closed on Monday. The financial regulator Bafin ordered it to be closed to customers with immediate effect. Because of “the existing risk for the fulfillment of obligations to creditors”, the Bafin issued a sale and payment ban on the bank. “The plight of Silicon Valley Bank Germany Branch poses no threat to financial stability.”
The situation on the financial markets remained tense. Although the government’s deposit guarantee at Wall Street’s initial public offering on Monday initially seemed to have had some effect, nervousness in bank stocks remained high. The stocks of some US regional banks were temporarily withdrawn from trading after heavy price losses. The papers of larger financial institutions such as Bank of America, Wells Fargo and Citigroup came under pressure.
“Know who is responsible”
Meanwhile, in the US, the search for culprits after the SVB collapse is in full swing. The easing of the banking rules, which were tightened in the wake of the financial crisis in 2008, came into focus under the then US President Donald Trump. “We know who is responsible,” said Elizabeth Warren, a Democratic Senator and well-known Wall Street critic, in an article published in the New York Times. The current banking crisis is a direct consequence of financial rules that were softened by politicians and the Fed during the Trump era.
Biden also blamed Trump. President Barack Obama, whose deputy was Biden, issued strict conditions so that the financial and banking crisis would not repeat itself. Under Trump, some of these requirements were reduced.
In 2018, the US Congress cleared the way for a repeal of essential parts of the so-called Dodd-Frank Act, which was intended to prevent renewed bank failures at the expense of taxpayers. Trump promised the financial lobby when he took office in 2017 that he would roll back the rules passed in 2010. Trump described the Dodd-Frank Act as a “disaster” that he would like to abolish altogether. That didn’t happen, but for small and regional banks – which are now struggling – the conditions have been eased.