Joe Biden calls for bank regulations after Silicon Valley Bank failure

WASHINGTON — President Joe Biden on Thursday urged federal regulators to take up a set of reforms to safeguard the banking system, following the collapse of Silicon Valley Bank and Signature Bank.

The White House said in a fact sheet Thursday that Biden’s proposals fit into his recent effort “to strengthen oversight and regulation of larger banks in order that we are usually not on this position again.” The administration wants regulators to take a spread of steps to reinstate safeguards for banks with assets between $100 billion and $250 billion and bolster supervision over financial institutions.

“Each of this stuff could be completed under existing law,” the White House said.

The administration’s proposed reforms include:

• Raising liquidity requirements for mid-sized banks;
• Updating liquidity stress tests to consider high-speed digital withdrawals, and the power of social media to spread information amongst depositors at a much faster pace than ever before;
• Increasing the frequency of stress tests for mid-sized banks;
• Requiring mid-sized banks to submit plans to regulators explaining how they might close down within the event that they fail, without transmitting added stress to the economic system;
• Updating stress tests to account for novel situations not accounted for in current models, just like the effect of rapid rate of interest hikes on banks with high rates of low-yield, long-term debt;
• Limiting which banks must contribute to replenishing the Deposit Insurance Fund, which the federal government used to bail out Silicon Valley Bank’s uninsured depositors.

Several of the proposals the White House endorsed are already into account, based on bank regulators who testified this week before two congressional committees. As Republicans, who’re more skeptical of regulation than Biden’s Democratic Party, control the House, the administration has pushed for potential fixes that may not require recent laws.

Amongst these are stricter rules for measuring liquidity in mid-sized banks, those with over $100 billion in combined assets, but under $250 billion.

While the Trump-era deregulation bill passed in 2018 limited regulators’ ability to impose liquidity demands and stress tests on small banks, it gave agencies broad discretion as to find out how to tailor bank capital requirements for mid-sized banks like SVB.

In responding to the bank failures, GOP lawmakers have criticized the Biden administration and regulators somewhat than bank executives. They’ve said federal officials had the tools they needed to forestall the collapses, but didn’t act properly.

In a press release Thursday, Rep. Patrick McHenry, R-N.C., chair of the House Financial Services Committee, accused the Biden administration of politicizing the banks’ failures and questioned whether the proposed fixes would have prevented the crisis.

“As we heard from Biden’s own regulators at our hearing yesterday, supervisory incompetence was the leading explanation for the failures,” McHenry said, referencing the Wednesday event with banking regulators. “There isn’t any evidence that the unique Dodd-Frank would have prevented these bank runs.”

McHenry added that recent stress tests don’t account for “current economic conditions” that contributed to the banks’ collapse.

“As a substitute of giving more authority to regulators who were asleep on the wheel before these bank failures, we must always hold them accountable for his or her inability to utilize their existing supervisory tools,” he said.

Meanwhile, Democrats are forging ahead with recent laws. Since SVB collapsed in mid-March, members of Congress have introduced a half-dozen bills intended to penalize bank executives and to assist stabilize the economic system going forward.

On Wednesday, a bunch of Democratic senators, led by financial regulatory hawk Sen. Elizabeth Warren, D-Mass., sent a letter to bank regulators demanding stronger bank capital requirements. Warren and Sen. Catherine Cortez Masto, D-Nev., introduced laws Wednesday that may require federal regulators to claw back all or a part of compensation earned by executives within the five-year period preceding a bank failure.

Rep. Maxine Waters, D-Calif., rating member of the House Financial Services Committee, also announced this month that she’s going to create a bill to boost accountability for bank executives at failed firms, through tools including clawbacks and penalties.