Biden’s Handling of Economy Contributed to Banking Crisis, Senate Republicans Say

The handling of the nation’s economy by President Joe Biden “contributed” to the failures of Silicon Valley Bank (SVB) and Signature Bank, Sen. Tim Scott (R-S.C.) said in remarks in front of Treasury Secretary Janet Yellen.

During Thursday’s hearing by Secretary Yellen before the Senate Finance Committee, the Senate Republicans linked rising inflation to bank failures.

“Biden’s handling of the economy contributed to these bank failures,” Scott stated. “The president’s budget is further evidence of reckless tax and spending that will only exacerbate the highest inflation we’ve seen in 40 years.”

Sen. John Cornyn, R-Texas, told Yellen there had been suggestions “this was an example of mismanagement at a time of higher interest rates and higher inflation.”

He referred to Yellen’s comments from the previous committee almost two years back, when she dismissed inflation worries.

“I’ve previously said that I see important transitory influences at work, and I don’t anticipate that it will be permanent,” She said this in June 2021.

Sen. Ron Johnson (R.Wis.), continued the inflation narrative, explaining that the annual consumer prices index was at 1.4% when Biden assumed office. Today, one dollar is worth 87cs. This trend began in 2009. “following the enactment of the partisan American rescue plan act,” He concluded.

“I would say the number one economic problem is our debt and deficit. And I would say that the top three causes of inflation … are deficit spending, high energy costs, and supply dislocations,” He stated this in an exchange with Yellen.

Biden rejected price pressures during his first year in office and stated in December 2021, that inflation had reached 2%. “the peak” It would quickly decline.

Cornyn pointed out that Jerome Powell, Federal Reserve Chair, had previously insisted that inflation is temporary. He did not realize that the time was right to retire his term until November 2021.

Powell joined Yellen soon after, referring no longer to inflation as temporary.

“I am ready to retire the word transitory,” she said at a December 2021 Reuters Conference. “I can agree that that hasn’t been an apt description of what we are dealing with.”

The U.S. central banking began tightening its policy of raising interest rates and decreasing the balance sheet when annual inflation reached 8.5% in March 2022. The Federal Open Market Committee (FOMC), which has initiated rate increases totaling 450 basis point, lifted the benchmark fed funds rates to their highest level since 2007.

The bond market experienced significant volatility as the Fed raised rates. This caused valuations to plummet. The financial institution suffered huge losses because SVB had many long-term bonds to back its high deposit rates.

Concerns Over Guarantees

The U.S. banking sector “remains sound” American “can feel confident” Janet Yellen, Treasury Secretary, spoke out about their deposits.

Yellen was the first White House official who faced Congress after the collapse of Signature Bank and SVB. She praised the administration’s achievements. “decisive and forceful actions to strengthen public confidence” In the national banking system.

“I can reassure the members of the committee that our banking system is sound and that Americans can feel confident that their deposits will be there when they need them,” Yellen spoke to the Senate Finance Committee during her opening remarks. “This week’s actions demonstrate our resolute commitment to ensure that our financial system remains strong and the depositors’ savings remain safe.”

On Sunday, the Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation (FDIC), took emergency measures to stop a possible contagion. FDIC will protect all insured and uninsured deposit, while central bank created a new lending institution that Yellen stated would provide additional liquidity. “help financial institutions meet the needs of all of their depositors.”

Senator Mike Crapo (R.Idaho), expressed concern “about the precedent of guaranteeing all deposits and the market expectation moving forward.”

Senator James Lankford (Republican of Oklahoma) claimed that recent efforts by officials are encouraging depositors move their funds from the community banks to the large banks. He stated that “we’re not going to make you whole, but if you go to one of our preferred banks, we will make you whole at that point.”

Many of the world’s largest financial institutions reveal that they have seen greater deposits inflows following the Signature Bank and SVB bank failures.

Christian Sewing was the Deutsche Bank AG CEO. He revealed that the bank experienced higher deposit inflows at the European Financials Conference hosted by Morgan Stanley on March 15. Walter Bettinger, Charles Schwab’s CEO, confirmed that the bank received $4 billion in new deposits.

March FOMC Meeting

The markets are speculating on whether the FOMC will raise interest rates next week at its key policy meeting, or if it will pause the tightening. Market analysts and economists believe that the Fed is caught between two economic rocks: Continue the inflation-fighting rate increases that could negatively impact the banking industry or pause tightening, which could help the banking sector but also threaten an inflation revival.

CME FedWatch Tool shows investors are primarily betting on a quarter point jump.

Markets analyzed the latest announcements by the European Central Bank. The ECB’s Governing Council voted for an increase in the benchmark rate of 50 basis points. They also promised liquidity support if the financial sector needs a cash injection.

“The euro area banking sector is resilient, with strong capital and liquidity positions,” The statement was made by the ECB. “The ECB’s policy toolkit is fully equipped to provide liquidity support to the euro area financial system if needed and to preserve the smooth transmission of monetary policy.”