The shadow of the financial crisis of 2008 is very long and these days it has gained in depth due to the collapse of two banks and the emergency rescue of another.
There is a background. Many voices fear a sequel to that situation, with citizens paying for the mess and the bank managers who caused it taking home millionaire rewards for ideas as brilliant as subprime, the so-called toxic mortgages.
President Joe Biden, who lived through that tide of evictions as vice president, takes it very seriously.
Speaking to the nation on Monday, following the takeover of Silicon Valley Bank (SVB) and Signature, he said not a single taxpayer penny would be used to bail out these entities and warned that the perpetrators of ‘they will not get away with this other disaster.
This threat was reinforced yesterday, Friday, when he sent to Congress a request that allows more powers to be used to punish bad bank managers.
“Congress must do more to hold the executives accountable”, he pointed out in his urgent request. “No one is above the law”, he recalled.
“When banks fail because of mismanagement and excessive risk-taking, it should be easier for regulators to claw back executive compensation, impose civil penalties and bar executives from ever working in the banking business again,” he emphasized.
Biden called for an expansion of the Federal Deposit Insurance Corporation’s (FDIC) authority to undertake such punishment and even to recoup “profits from the sale of shares of failed bank executives like Silicon Valley Bank and Signature”.
In his note he recalled that SVB managers sold shares worth more than 3 million dollars in the days before the intervention. The FDIC currently has very limited powers to recover capital from set-offs or sales and to impose penalties.
Concerns about the banking system resurfaced yesterday on the New York Stock Exchange. The Dow Jones once again entered negative territory. Thursday’s euphoria over the announcement that the country’s 11 largest banks deposited $30 billion to rescue First Republic Bank, the main victim of the crisis, was short-lived.
Investors reversed their position after the 10% rise in First Republic’s share price. Yesterday, Friday, its shares fell by around 30% of their value.
