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Silicon Valley is breathing a sigh of relief after Biden's remarks on the bank crisis

SACHA PFEIFFER, HOST:

President Biden spoke a short time ago to try to reassure bank depositors around the country that their money is protected.

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PRESIDENT JOE BIDEN: Today, thanks to the quick action of my administration over the past few days, Americans can have confidence that the banking system is safe.

PFEIFFER: Biden's remarks come after the shocking collapse of Silicon Valley Bank last week and the forced closure of a second bank in New York over the weekend. NPR's Scott Horsley joins us now. Hi, Scott.

SCOTT HORSLEY, BYLINE: Good morning, Sacha.

PFEIFFER: What did the president have to say?

HORSLEY: Biden spoke in the Roosevelt Room at the White House, and he's trying to avoid the kind of nationwide bank fallout that President Franklin Roosevelt had to contend with during the Great Depression. The president's message to people across the country is, the money you have in the bank is safe.

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BIDEN: Your deposits will be there when you need them. Small businesses across the country that deposit accounts at these banks can breathe easier knowing they'll be able to pay their workers and pay their bills. And their hardworking employees can breathe easier as well.

HORSLEY: Now, beyond those soothing words from the president, the government has taken some extraordinary steps here, saying depositors at both of these failed institutions will be fully protected, no matter how much money they had in the bank. Ordinarily, deposit insurance covers only a quarter million dollars per account. But the FDIC is waving that limit and saying depositors will get all their money back. And what's more, the Federal Reserve is setting up a new lending facility that other banks can tap so they don't get into the same kind of trouble. The Fed's acting as lender of last resort here, and it's hoped that will also foster confidence in the banking system.

PFEIFFER: And, Scott, tell us more about the practical effect of this.

HORSLEY: Well, there's going to be a huge sigh of relief in Silicon Valley. You know, a lot of tech companies, including start-ups, had their money tied up in Silicon Valley Bank. When its doors were closed on Friday, there was enormous concern about whether those companies would be able to make payroll, whether some of them would even be able to stay in business. On the flip side, though, there is a risk of moral hazard here. You know, is the government now obligated to protect other depositors at other banks, no matter how much money they have? Is this going to encourage reckless behavior by banks? We're already hearing complaints from some quarters that the government's protecting wealthy tech companies at a time when lots of ordinary Americans are suffering financial hardship. President Biden went out of his way this morning to say this is not a bailout.

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BIDEN: No losses will be borne by the taxpayers. Instead, the money will come from the fees that banks pay into the deposit insurance fund. Because of the actions of that - because of the actions that our regulators have already taken, every American should feel confident that their deposits will be there if and when they need them.

HORSLEY: Biden also stressed that the government will hold people responsible for bad decisions that may have contributed to these bank failures. He said the management of the banks has been fired. Investors in those banks are losing money, and we could see some additional bank regulation come out of this as well.

PFEIFFER: Scott, there are complicated economics behind what happened to Silicon Valley Bank. But can you give us a simplified version of why these banks got in trouble?

HORSLEY: Silicon Valley is kind of an unusual case. A lot of its customers are tech companies. Of course, the tech sector, which had been flying very high, has recently fallen on somewhat harder times. As a result, some of those companies are having to withdraw more money from the bank. And so the bank had to sell a lot of government bonds to cover those withdrawals. And in some cases, those bonds had lost value because of rising interest rates. When word of those bank losses got around, other depositors got worried about their money. They tried to take money out, and that sparked a classic bank run. Now, part of what the Fed hopes to do with its new lending facility is avoid that kind of fire sale by banks. It's saying to banks, if you need cash to cover withdrawals, we'll lend you the money so you don't have to sell bonds at a big loss.

PFEIFFER: NPR's Scott Horsley, thank you.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Sacha Pfeiffer is a correspondent for NPR's Investigations team and an occasional guest host for some of NPR's national shows.
Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.