Topline
Democrats placed blame for the collapse of Silicon Valley Bank and Signature Bank over the weekend on looser regulations signed by former President Donald Trump, and called for Congress to reimpose some post-Great Recession rules on smaller banks—but Republican lawmakers have already expressed opposition to stricter regulations, and they have long odds of passing the GOP-controlled House.
Sen. Elizabeth Warren, D-Mass., questions Federal Reserve Chairman Jerome Powell during the Senate … [+]
Key Facts
Sen. Elizabeth Warren (D-Mass.) said in a New York Times op-ed published Monday that “regulators should reverse the dangerous bank deregulation of the Trump era” that eliminated some restrictions imposed by the 2010 Dodd-Frank law for small and medium-sized banks like SVB and Signature, including regular stress tests and enhanced risk-measuring standards.
Warren said regulators should reform the deposit insurance system so that financial institutions are responsible for protecting large corporations with uninsured deposits, rather than expecting “free support from the government” (the FDIC has promised to make all SVB and Signature depositors whole, even if their assets exceed the $250,000 normally insured by the government, though the Treasury has stressed any losses will come from banks rather than taxpayers).
She also called on prosecutors and regulators to investigate SVB and Signature executives for insider trading or violations of other criminal laws and “claw back” pay and bonuses, noting SVB CEO Greg Becker received a $1.5 million bonus last year.
Warren was joined by President Joe Biden, Sens. Bernie Sanders (I-Vt.) and Reps. Ayanna Pressley (D-Mass.), Ro Khanna (D-Calif.) and Adam Schiff (D-Calif.) in targeting the Trump-era rollbacks in the wake of the SVB and Signature crisis, while Rep. Katie Porter (D-Calif.) said she is working on legislation to reverse the 2018 partial repeal of the Dodd-Frank Act.
Top Republicans have said they oppose any new oversight, however: Senate Banking Committee Ranking Member Tim Scott (S.C.) said “intervention does nothing” to stop banks from relying on the government as fallback for “excessive risks,” while House Financial Services Chair Patrick McHenry (N.C.) said he has “confidence” in “the protections already in place.”
Chief Critic
Trump’s spokesperson Steven Cheung accused his Democratic critics of attempting to “gaslight the public to evade responsibility,” he told Bloomberg in a statement, adding that they were attempting to blame the former president “for their failures with desperate lies.”
Key Background
Silicon Valley Bank closed on Friday and handed control of its assets to the FDIC, following a mass exodus of deposits spurred by rising interest rates that decreased the value of the bank’s investments. The closure marks the second-largest in U.S. history and the largest since 2008, sending shockwaves through the U.S. banking industry and spooking many tech startups that relied on SVB. Regulators also shuttered Signature Bank on Sunday, the third-largest bank closure, following a run on deposits that is largely considered a byproduct of SVB’s collapse, though the bank was already facing hardships due to its heavy reliance on deposits from the struggling cryptocurrency industry. The FDIC has vowed that all SVB and Signature depositors will have access to their money no later than Monday evening, even if their deposits exceed the $250,000 threshold for FDIC insurance, making use of the federal government’s power to safeguard uninsured bank deposits due to “systemic risk.” SVB’s investors will not get any federal protection, however, and the bank’s executives have been ousted.
Tangent
SVB’s CEO was a prominent backer of the partial repeal of the Dodd-Frank Act in 2018, arguing that the regulatory restrictions—which were passed in the wake of the 2008 financial crisis—imposed too high a burden on small- and medium-sized banks. The legislation, which netted support from 33 House Democrats, raised the threshold for stricter standards from banks with $50 billion in assets to $250 billion, leaving fewer than 10 U.S. financial institutions subject to Dodd-Frank’s additional restrictions on “systemically important” financial institutions. The relaxed requirements exempted the smaller banks from implementing liquidity stress tests and bank resolution plans. As of December, both Silicon Valley Bank and Signature Bank had assets low enough to avoid the $250 billion threshold, but high enough to be covered by the old $50 billion cutoff.
Further Reading
Biden Says Saving Silicon Valley Bank Helped Economy ‘Breathe Easier’—But Not All Experts Agree (Forbes)
How Trump’s Deregulation Sowed The Seeds For Silicon Valley Bank’s Demise (Forbes)
What To Know About Silicon Valley Bank’s Collapse—The Biggest Bank Failure Since 2008 (Forbes)
Source: https://www.forbes.com/sites/saradorn/2023/03/13/democrats-blame-svb-collapse-on-trump-era-regulatory-rollbacks-but-gop-opposes-stricter-rules/