Jon Lieber, head of Eurasia Group's coverage of political and policy developments in Washington, DC shares his perspective on US politics:
Who does Washington blame for the Silicon Valley Bank collapse?
After the largest bank failure in the US since the 2008 Financial Crisis, fears of a wider financial system failure prompted the Federal Reserve and the FDIC to take dramatic measures to contain more potential bank runs last weekend. This will have broad implications of the future of bank oversight, including capital requirements and what to do about uninsured deposits that will not be fully understood for years.
But it seems like the political consequences could likely already be over. Congressional lawmakers do not want to deal with another financial crisis, and have given federal regulators wide latitude to take whatever steps they think are necessary to backstop the financial sector. Much of these authorities were created on a bipartisan basis by Congress after the Financial Crisis in 2010, giving regulators the power to insure uninsured deposits while wiping out management and shareholders of the two failed banks, and creating a new liquidity facility for banks more generally.
And the response from Congress has largely been pretty positive. Some Republican lawmakers have even encouraged regulators to go further than they did and cover all uninsured deposits, which is probably unlikely. And there is, of course, the traditional blame game happening in Washington, with Democrats blaming a deregulatory effort that happened during the Trump administration and Republicans blaming both the management of the bank for being what they say is too woke and the economic conditions that created high inflation and rising interest rates under President Biden.
But the interesting thing here is that by the middle of this week, the Washington outrage machine had largely moved on to other issues, with conservative media focused instead on a new effort at gun control by the Biden administration and other media talking about the war in Russia and an ongoing political dispute between former President Donald Trump and current Florida Governor Ron DeSantis.
While some on both sides of the aisle will continue to criticize the Biden bailout for politically connected venture capitalists and tech pros, in the absence of further market disruptions, while there could be some longer term policy reforms to prevent these problems from happening again, nearer term, the fact that regulators saved Congress from having to pass another financial rescue like they did in 2008 is welcome news for most politicians in Washington. And this incident seems likely to sink into the swamp almost as quickly as it popped up.
