Hard-Right Republicans—DeSantis, Greene—Blame SBV Failure On ‘Woke’ Policies But Without Clear Evidence

Topline

Some hard-right Republicans blamed the downfall of Silicon Valley Bank and Signature Bank on what they called “woke” social and environmental policies, a dubious and unproven theory pushed as some GOP House leaders express confidence in the Biden Administration’s moves to avert the fallout—and urge members to avoid any factually fraught claims.

Key Facts

Key Background

The FDIC shut down Silicon Valley Bank on Friday and Signature on Sunday, marking the second- and third-largest bank failures in history. SVB’s downfall has been attributed to its focus on the struggling technology startup industry and increasing interest rates. New York-based Signature Bank, a main lender to the ailing cryptocurrency industry, was shuttered after shares fell by nearly 25% on Friday and customers swiftly withdrew their deposits. The FDIC promised to make all SVB and Signature depositors whole, even if their deposits exceed the $250,000 normally insured by the government, a sweeping action the FDIC justified by citing “systemic risk” to the banking system. Bipartisan concerns have emerged about this promise to back all SVB and Signature depositors. Sen. Bernie Sanders (I-Vt.) told the Washington Post that “if there is a bailout of Silicon Valley Bank, it must be 100 percent financed by Wall Street,” while Greene tweeted “the fools running the bank were woke and almost became broke, but the Democrats and the Fed swooped in to make sure their woke donors at SVB didn’t go under.”

Tangent

Democrats have blamed the crisis on Trump-era regulatory rollbacks that freed SVB and other small- and medium-sized banks from regular stress tests and capital and liquidity standards. The Trump-era rollbacks, which passed in 2018 with support from dozens of Democrats, modified the 2010 Dodd-Frank Act by moving the threshold for banks to face additional scrutiny from $50 billion in assets to $250 billion, under the belief that banks of SVB’s size (with less than $250 billion) should not be classified as “systemically important financial institutions” because they were not a threat to the economic stability. Banking experts have said that the more stringent regulations implemented as part of the 2010 Dodd-Frank Act—a reaction to the 2008 financial crisis—may have compelled the banks to take more preventive measures, but the banks’ dependency on the ailing tech startup sector, along with rising interest rates that tanked the value of its investments, were also factors in its demise

Contra

Some Democrats also placed blame on the Federal Reserve and its Chair, Jerome Powell, for not subjecting banks like SVB to enough scrutiny—Sen. Elizabeth Warren (D-Mass.), a longtime Powell critic, said he should recuse himself from the agency’s internal probe of its role in the SVB collapse and accused the Fed of allowing financial institutions to “load up on risk.” There’s some bipartisan consensus in targeting the Fed: Republican Senate Banking Committee member Bill Hagerty (R-Tenn.) told Bloomberg the San Francisco Fed office (for which SVB CEO Greg Becker served as a director until Friday) should be held accountable, while Rep. French Hill (R-Ark.) and Rep. Andy Barr (R-Ky.) expressed similar concerns to Punchbowl.

Chief Critic

McCarthy, in discussing the debt ceiling negotiations with the White House on Fox News, tied rising interest rates that contributed to SVB’s collapse to mounting government debt, arguing debt has contributed to the spike in inflation that caused the Fed to hike interest rates. “High debt brings inflation and what happens with inflation? You see with this bank—interest rates moving up,” he said, teasing what could become an emerging Republican talking point.

What To Watch For

Warren and Rep. Katie Porter (D-Calif.) introduced legislation on Tuesday that would reverse the 2018 changes. But any new regulations face long odds of passing the GOP-controlled House. Senate Banking Committee Ranking Member Tim Scott (R-S.C.) said “intervention does nothing” to stop banks from relying on the government as fallback for “excessive risks,” while McHenry (N.C.) said he has “confidence” in “the protections already in place.”

Further Reading

Democrats Blame SVB Collapse On Trump-Era Regulatory Rollbacks—But GOP Opposes Stricter Rules (Forbes)

‘Head Fake Rally’? Dow Jumps 400 Points On Bank Stocks’ $37 Billion Recovery (Forbes)

How Trump’s Deregulation Sowed The Seeds For Silicon Valley Bank’s Demise (Forbes)