Following the meltdown of First Republic Bank, US President Joseph Biden has reassured depositors that they are safe.
In his speech, the American leader promised to protect lenders and small businesses after the recent collapse of First Republic Bank and stressed that this kind of bank failure should never repeat again.
“Let me be very clear: All depositors are being protected,” Biden said in remarks from the Rose Garden. “Shareholders are losing their investments. And critically, taxpayers are not the ones that are on the hook,” the president reckoned.
Some might say that Biden has done his job well. However, such promises disrupt financial discipline totally. Knowing that they are protected, lenders will stop assessing any financial risks and will trust their money with unreliable institutions, believing they will still be able to return their funds. At the same time, banks will take any responsibility off their shoulders, knowing that they can shut down their activities at any moment and not be held accountable.
