U.S. Senator Elizabeth Warren (D-MA) speaks to reporters about codifying gay marriage on Capitol Hill in Washington, September 15, 2022.
Evelyn Hockstein | Reuters
WASHINGTON — A gaggle of Democratic senators introduced recent laws Tuesday to repeal Trump-era bank deregulations they are saying created the conditions that allowed for the dramatic collapse of Silicon Valley Bank and the closure of Signature Bank since Friday.
The brand new bill lowers the brink at which banks deemed “too big to fail” are subjected to enhanced federal supervision under the 2010 Dodd Frank Act.
Under Dodd-Frank, the tighter capital and liquidity requirements, referred to as “enhanced prudential standards” were applied to any bank with consolidated assets of $50 billion or more.
Immediately, mid-sized banks, including SVB, began lobbying Congress for an exemption from the tighter oversight rule. In 2018, the lobbying paid off, when Republican majorities within the House and Senate voted to lift the bank asset threshold to $250 billion, and then-President Donald Trump signed it into law.
On the Senate floor Tuesday, Democratic Sen. Elizabeth Warren, Mass., drew a straight line from the 2018 deregulation effort to the 2023 failure of SVB and Signature.
“The weakened rules permitted banks like SVB and Signature to load up on risks, run up their profits, pay their executives, giant bonuses, and eventually blow the banks to pieces,” said Warren.
Silicon Valley Bank had roughly $209 billion in assets when the California Department of Financial Protection and Innovation shuttered it on Friday while Signature had $110.4 billion in assets when the Recent York Department of Financial Services took it over Sunday.
A longtime critic of the banking industry, Warren is one in every of the chief sponsors of the brand new laws, which might lower the asset threshold for enhanced prudential measures back to its original $50 billion level.
The same bill was introduced within the House by Rep. Katie Porter, a California Democrat and one in every of several members of the House vying for the seat of retiring Sen. Dianne Feinstein. Each bills have a variety of Democratic co-sponsors, but an entire list was not available Tuesday evening.
“If Congress and the Federal Reserve had not rolled back key provisions of Dodd Frank, these banks would have been subject to stronger liquidity and capital requirements… and regulators standing at their shoulder, looking more closely at every a part of the bank’s business,” said Warren. “But because those stringent requirements were taken out of Dodd Frank, when an quaint bank run hit SVB, the bank couldn’t withstand the pressure,” she said.
As Congress begins to look at the overnight collapse of SVB and the actions taken by regulators to stem a broader banking crisis, fresh fault lines are emerging not only between Democrats and Republicans, but amongst individual members of every party.
Within the Senate, there are 13 members of the present Democratic caucus who joined Republicans in 2018 to vote for the regulatory rollback of Dodd-Frank, including Virginia Sen. Mark Warner, who leads the Senate Intelligence Committee.
Warner has defended his 2018 vote in recent days, and his comments underscore the issue Warren is probably going encounter in in search of to repeal the 2018 rules.
“I feel it put in place an appropriate level of regulation on mid-sized banks,” Warner said last weekend of his 2018 vote. “These mid-sized banks needed some regulatory relief,” he told ABC News’ “This Week.”
While the repeal’s path forward within the Senate is difficult, its path within the Republican-controlled Home is all but impassible.
House Speaker Kevin McCarthy, R-Calif., tweeted Tuesday that the actual offender for the SVB and Signature collapses was President Joe Biden’s economic agenda.
“Biden’s reckless spending caused record inflation and rapid rate of interest hikes that broke family budgets and banks too,” wrote McCarthy, adding: “We must restore fiscal sanity.”