U.S. politicians ratchet up blame game after meltdown of Silicon Valley Bank

People queue up outside the headquarters of the Silicon Valley Bank (SVB) in Santa Clara, California, the United States, March 13, 2023. (Photo by Li Jianguo/Xinhua)

WASHINGTON, March 15 (Xinhua) -- U.S. politicians are ratcheting up a blame game after the collapse of Silicon Valley Bank (SVB), in a demonstration of America's deep political divide and dysfunction.

SVB collapsed last week and was taken over by federal regulators. New York-based Signature Bank also failed and was seized by the New York Department of Financial Services "in order to protect depositors."

BLAMINGS

U.S. Senator John Thune, a South Dakota Republican, told reporters Wednesday on Capitol Hill that regulators were "asleep at the switch."

"Most of our members want to have the question answered by the regulators, what happened?" Thune said. "How come they were asleep at the switch and didn't see this coming?"

Former U.S. President Donald Trump, a Republican, has seized on the SVB's meltdown, the biggest bank failure since the 2008 financial crisis, to take a swipe at sitting President Joe Biden and the Democrat's economic policy.

"Two big banks yesterday closed," Trump said at a campaign event in Iowa earlier this week, adding: "We have an economy that is in shambles."

This photo taken on Feb. 3, 2023 shows the White House in Washington, D.C., the United States. (Xinhua/Liu Jie)

BIDEN'S RESPONSES

Biden said in remarks from the White House on Monday that "Americans can have confidence that the banking system is safe."

"No losses will be borne by the taxpayers," he reiterated. "Instead, the money will come from the fees that banks pay into the Deposit Insurance Fund."

Additionally, Biden accused the Trump administration of rolling back regulations on the U.S. banking sector.

"I'm going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure will happen again," Biden said.

All deposit accounts at SVB and Signature Bank will be guaranteed, according to a joint statement released by the Federal Reserve, the U.S. Department of the Treasury, and the Federal Deposit Insurance Corporation on Sunday.

"Depositors will have access to all of their money starting Monday, March 13," the statement read. "No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer."

BAILOUT ALLEGATION

Former United Nations Ambassador and South Carolina Governor Nikki Haley, who is also running for the White House, tweeted that "Biden is pretending this isn't a bailout."

"Now depositors at healthy banks are forced to subsidize Silicon Valley Bank's mismanagement. When the Deposit Insurance Fund runs dry, all bank customers are on the hook. That's a public bailout," Haley wrote.

"Depositors should be paid by selling off Silicon Valley Bank's assets, not by the public," she continued. "Taxpayers should not be responsible."

Customers wait inside a Signature Bank branch in New York, the United States, on March 13, 2023. (Photo by Michael Nagle/Xinhua)

INVESTIGATION URGED, DOWNPLAYED

Senate Majority Leader Chuck Schumer, a New York Democrat, on Wednesday called for an investigation in order to "hold those responsible accountable."

"We need strong legislation and hopefully we can get something bipartisan done," Schumer told reporters. "That's what our goal is."

However, Senate Banking Committee Chairman Sherrod Brown played down the chances of the U.S. Congress passing a major banking bill soon.

"There are people who will introduce bills, but I cannot imagine -- with the hold that the banks have on Republicans in Congress -- that we could pass anything significant," Brown, an Ohio Democrat, explained.

Democrats only have a razor-thin majority in the Senate and need Republican votes to advance any legislation while the U.S. House of Representatives was controlled by Republicans.

The U.S. Department of Justice has reportedly begun a preliminary inquiry into the failure of SVB and the review is in its early stages.

POLARIZED POLITICS A CAUSE OF CONCERN

Stephen Collinson, a reporter for CNN, wrote in an analysis published on Tuesday that "the biggest systemic risk to the United States lies not in its banking system but in its polarized politics."

"The hyper-politicized reaction to the drama in Washington and on the Republican 2024 campaign trail, as key figures twisted the situation to further predetermined political ends, suggested that if a real financial crisis does erupt, it may be beyond the government's capacity to fix it," Collinson warned.

The 16th-largest bank in the United States and the largest bank by deposits in Silicon Valley, SVB was shut down by California regulators on March 10 after depositors rushed to withdraw funds amid concerns about the bank's balance sheet.

Former U.S. Treasury Secretary Larry Summers tweeted on Monday that "SVB committed one of the most elementary errors in banking: borrowing money in the short term and investing in the long term."

"When interest rates went up, the assets lost their value and put the institution in a problematic situation," Summers added.