Biden Goes Quiet on Banking Crisis, Calls on Congress to Act
For many, the banking crisis in the US is a source of fear, dismay, and frustration. Banks have been facing an unprecedented squeeze in their liquid assets, making it difficult to operate and remain sound. Yet, President Joe Biden has been largely silent on the issue – leaving individuals and small businesses without a definitive plan of action to combat the current financial blight. Instead, Biden is calling on Congress to act and is pushing for legislation to aid banks and support the economy as it struggles through the crisis.
The Plea for Congressional Action
Biden has asked Congress to intervene with proposed legislation to aid banks, citing the need to revive the economy. He has proposed extensions on traditional aid like the Paycheck Protection Program, which helps small businesses stay afloat, a bolstered stimulus packages, and budget investments. He’s also pushing for an increase in bank capitalization and more regulatory oversight.
The White House has warned that Congress’ inaction could lead to even more prolonged economic hardship and lasting damage to the banking sector. Biden spokeswoman Jen Psaki said, “We are not in a position where we can let our guard down and assume there will be an unlimited pool of private capital to bail out the banking industry from a crisis.”
President Biden has urged congressional members to consider the full range of measures, from direct intervention to more extensive policy options, depending on the scope of the problem. He’s gone so far as to call on Congress to pass a stimulus package quickly, so the US has the resources to protect Americans who are struggling.
The Banking Crisis
Currently, the difficulty that banks are experiencing is the result of the financial crisis in 2020, which was spurred by the coronavirus pandemic. The sharp decrease in consumer spending and revenue led to banks’ liquid assets being squeezed, leading them to raise capital or reduce services to remain in compliance.
It hasn’t been a good time for banks. The Federal Reserve has injected hundreds of billions of dollars into the banking sector, which is a clear reminder of the state of banks in the US. Many are facing their worst liquidity crisis since the last financial downturn in 2008, and the situation is still not stable.
The US banking sector has made significant adjustments over the past decade in response to the financial crisis in 2008. Regulations were set in place to make it more difficult for banks to go bankrupt and to force banks to keep more cash on hand in case of unforeseen circumstances.
However, the impact of the pandemic on banks has been much more severe than that of the 2008 crisis. It has become increasingly difficult for banks to remain in compliance with post-crisis regulations, leading to a potential liquidity crisis.
The Impact of the Crisis
The banking crisis has had a far-ranging impact on the US economy. Most notably, it has made it difficult for individuals and small businesses to access the funds they need to support and grow their businesses, making it difficult to remain viable in the current environment.
Additionally, banks have been forced to cut back on lending and loan demand has dropped, stifling investment and activity in the economy. This has further weakened economic activity and made it difficult for businesses to remain afloat.
The banking crisis has also already led to the bankruptcy of a few large banks and a handful of smaller regional and community banks. The failures have caused a loss of jobs and further disruption in the banking sector, with many more of the weakened banks expected to face similar fates.
What Can Congress Do?
The Biden administration is hoping that Congress will act to provide immediate relief for the banking sector and to stimulate the economy.
Short-term Fixes
First, Congress must consider short-term fixes to help banks. One option is to extend the Paycheck Protection Program, which helps businesses keep their employees on payroll. This may help stave off job losses and provide some much-needed financial stability to many businesses.
Congress could also consider extending the forbearance of mortgage loans, which could help alleviate some of the stress in the banking industry and bring some relief to cash-strapped American households.
Additionally, Congress could look into providing more pro-growth policies like tax cuts for businesses and individuals. This could help stimulate the economy and help more people access sufficient funds to keep their businesses operating and stay solvent.
Long-Term Solutions
For more long-term solutions to the banking crisis, legislative reforms will be necessary. Congress should consider bringing back the Glass-Steagall Act that separated commercial and investment banking. This could help to prevent some of the risky behavior that caused the crisis in the first place.
Congress could also consider legislation that boosts banks’ capital requirements. This would make it more difficult to become over-leveraged and could help stop future banking crises.
Finally, Congress should consider introducing more oversight into the banking sector. This could ensure that banks adhere to their regulations, while also giving the federal government the ability to track down any inconsistencies or fraudulent activities.
The banking crisis in the US is a daunting problem, with dire consequences for individuals, businesses, and the economy. President Joe Biden has stayed largely silent on the issue, calling on Congress to take immediate and decisive action to intervene and provide much-needed relief.
Congress must act quickly and decisively to provide short-term and long-term solutions to the banking crisis. They must include extensions of the Paycheck Protection Program, extensions of forbearance for mortgage loans, tax cuts, and legislation to rein in risky banking behaviors and introduce more oversight into the sector.
Left unchecked, the banking crisis could haunt the US economy and leave lasting damage, so urgent action is necessary. Only time will tell if Congress is up to the task.
