WASHINGTON — The White House is exploring additional ways to ensure accountability for those who were responsible for the collapse of Silicon Valley Bank, administration officials said Tuesday.
Pointing to the bonuses some bank employees got last week and stock sales made by senior executives in recent years, a White House official said, “All of those are worthy of a deeper look.”
“Stay tuned on that front,” the official said, speaking on condition of anonymity to discuss the Biden administration’s thinking. “In the very near term, we’re going to have more to say about the accountability aspects of this.”
In his brief address Monday announcing the government’s plan to protect depositors, President Joe Biden made it clear that he didn’t want those who caused the bank’s failure to profit. That was one reason the 2008 bailout was so unpopular.
Looming over Biden’s response to the failure of SVB, the second-biggest bank failure in U.S. history, is that searing episode from his past: the 2008 financial collapse. Some of the same players who helped dig out from that debacle are still in office, beginning with Biden. Hard lessons from the breakdown of the global financial system 15 years ago appear to be shaping Biden’s response today.
After it took office in 2009, the Obama-Biden administration faced a bitter backlash when banks that had gotten government bailout money paid bonuses to their executives. In his memoir, “A Promised Land,” former President Barack Obama bristled over the “clueless attitude of the Wall Street executives whose collective asses we were pulling out of the fire.”
The smaller scale of the SVB failure compared to the 2008 calamity gives Biden space to both shore up customer confidence in the banking system and seek accountability for those potentially responsible for the crisis, a former official said.
When Obama took office, “assurance was greater than accountability given the scale of the global problem,” said Robert Gibbs, a former White House press secretary. “We were more trying to bail out the boat from sinking than we were looking for a new boat.”
Heading toward a likely re-election campaign, Biden can’t afford the sort of populist uproar the ’08 crisis triggered. And there is reason enough to worry. Last Thursday, when federal officials began hearing reports of panicked withdrawals from SVB, “the indicators were flashing red,” a second White House official said, speaking on condition of anonymity to discuss closed-door conversations.
The Justice Department has opened an investigation into the bank’s collapse, NBC News reported Tuesday. But on its own, the White House may take administrative action or throw its weight behind legislation that would “claw back” the bonus money or any stock sale gains, the first official said.
Rep. Adam Schiff, D-Calif., is introducing legislation to recover stock proceeds and bonus money paid in the run-up to the bank’s failure.
Biden privately told his advisers in meetings over the weekend that he wants tougher regulations on banks to prevent future failures, the second official said. Biden wants Congress to reverse the deregulatory actions lawmakers took during the Trump administration — a move critics contend has made banks more vulnerable to financial stresses.
It’s not clear that Biden has a specific blueprint in mind, but Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., are putting forward legislation that would restore the tougher requirements that were scuttled under President Donald Trump.
Biden was first briefed about SVB’s troubles Friday morning and was told the bank might need to be shuttered, according to accounts from administration officials. Federal regulators closed it later in the day.
Back home in Wilmington, Delaware, over the weekend, Biden went to church services and got video briefings from Treasury Secretary Janet Yellen, White House chief of staff Jeff Zients, National Economic Council Director Lael Brainard and other officials. As they weighed options, Biden asked what the bank’s closing would mean for small businesses, workers and the broader economy. A chief concern was that small businesses that kept deposits at SVB wouldn’t be able to pay their workers if the bank went under.
“The estimate we got was that over 1 million Americans would have been unpaid, some of whom had no idea they were at risk,” said Rep. Zoe Lofgren, D-Calif.
In his private briefings Sunday, Biden also told advisers that the people who caused the bank’s collapse shouldn't simply walk away with impunity, the second official said. He wanted management to be ousted, and he told Yellen that taxpayer money shouldn’t be used to cover the losses. Instead, the government would draw money from a special fund made up of bank fees.
In short, Biden wanted a resolution that would look nothing like the 2008 calamity.
“You’re a lot more sound politically if you can say in this moment of crisis, ‘I took on some of the banks on your behalf, and here are the things that I did,’” said Faiz Shakir, an adviser to Sen. Bernie Sanders, I-Vt. “The lesson from 2008 is not to go back to the American people and say, ‘All the bank CEOs were telling me it was terrible, and I had to make sure life was OK for them.’”
Rescuing SVB remains a dicey proposition for Biden, who presents himself as a champion of middle- and working-class Americans who may have little sympathy for a bank whose very name evokes well-heeled tech companies.
“It’s Silicon Valley Bank. Even the name doesn’t connote ‘working class,’” Shakir said.
The bank’s collapse has already touched off a partisan war likely to extend through the 2024 campaign season.
Republicans have been looking to capitalize on the bank’s fate, drawing a line between Biden’s economic policies and SVB. House Speaker Kevin McCarthy, R-Calif., previewed a fresh line of attack against Biden arising from the bank’s failure.
“Biden’s reckless spending caused record inflation and rapid interest rate hikes that broke family budgets and banks too,” McCarthy tweeted. “We must restore fiscal sanity.”
Yet Republicans face vulnerabilities of their own. When Trump was in the White House, Congress voted to loosen regulatory requirements governing small and midsize banks. Had those rules been intact, SVB and other troubled banks of comparable size would have faced stiffer liquidity and capital requirements that would have made them more resistant to financial stress, Democrats argue.
“Trump and Republicans generally have much more vulnerability for siding with banking interests in weakening the Dodd-Frank safeguards than Biden does for taking decisive action to prevent a larger meltdown,” said Geoff Garin, a Democratic pollster.
The distinctions aren't quite so tidy, however. Lawmakers from both parties voted to roll back pieces of the Dodd-Frank law, which was enacted after the ’08 collapse.