Silicon Valley Bank collapse puts new spotlight on Trump banking law
S E E D E D C O N T E N T
Link copied March 13, 2023, 2:59 PM UTC / Updated March 13, 2023, 4:33 PM UTC By Sahil Kapur
WASHINGTON — The failures of Silicon Valley Bank and Signature Bank are putting new scrutiny on a 2018 law that rolled back some banking regulations, with some Democrats calling to restore those rules as the federal government steps in to protect depositors.
"Congress, the White House and banking regulators should reverse the dangerous bank deregulation of the Trump era. Repealing the 2018 legislation that weakened the rules for banks like S.V.B. must be an immediate priority for Congress," Sen. Elizabeth Warren, D-Mass., wrote in a New York Times opinion piece Monday.
Rep. Katie Porter, D-Calif., who is running for Senate, said she's working on legislation in the House to reverse the 2018 law, which was led by Republicans and signed by then-President Donald Trump.
"Congress—in a bipartisan vote—caved to Wall Street and loosened our nation's banking laws. I have no problem standing up to Wall Street, so I'm writing legislation to reverse that risky law," she wrote in an email to supporters Sunday.
Biden addresses SVB, Signature failures: 'Deposits will be there'
March 13, 202306:41
President Joe Biden also said in a speech Monday announcing federal actions that the deregulation law played a role and called on Congress to toughen bank rules.
"During the Obama-Biden administration, we put in place tough requirements on banks, like Silicon Valley Bank and Signature Bank, including the Dodd-Frank law to make sure that the crisis we saw in 2008 would not happen again," he said. "Unfortunately, the last administration rolled back some of these requirements. I'm going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again and to protect American jobs and small businesses."
The fight over the 2018 law
Five years ago, Warren was the most outspoken opponent of the Republican-led Congress' push to undo regulations imposed under the 2010 Dodd-Frank law for small and midsize banks. The bill, led by Sen. Mike Crapo, R-Idaho, sought to reclassify the "too big to fail" standard, which came with enhanced regulatory scrutiny. By raising the threshold from $50 billion in assets to $250 billion, medium-size banks were exempted from those regulations.
"Had Congress and the Federal Reserve not rolled back the stricter oversight, S.V.B. and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks," Warren wrote Monday. "They would have been required to conduct regular stress tests to expose their vulnerabilities and shore up their businesses. But because those requirements were repealed, when an old-fashioned bank run hit S.V.B., the bank couldn't withstand the pressure — and Signature's collapse was close behind."
Sen. Bernie Sanders, I-Vt., who also opposed the 2018 law, blamed it for Silicon Valley Bank's collapse.
"Let's be clear. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill signed by Donald Trump that I strongly opposed," he said in a statement. "Five years ago, the Republican Director of the Congressional Budget Office released a report finding that this legislation would 'increase the likelihood that a large financial firm with assets of between $100 billion and $250 billion would fail.'"
The 2018 battle featured intense lobbying by banks — including Silicon Valley Bank and an array of smaller community banks — that were seeking regulatory relief.
The bill passed the House 258-159, winning 225 Republicans and 33 Democrats. In the Senate, it needed some Democrats to defeat a filibuster and achieve 60 votes. Warren infuriated some colleagues when she called out some Senate Democrats by name for trying to weaken Dodd-Frank rules.
In the end, 17 Democrats joined a unanimous Senate Republican conference to pass it. Trump signed it into law.
'Appropriate level of regulation'
One of those Democrats, Sen. Mark Warner of Virginia, defended the legislation Sunday when asked if he regrets supporting it.
"I do think these midsized banks needed some regulatory relief," Warner said on ABC's "This Week," adding that the law "put in place an appropriate level of regulation on midsized banks."
Warner said there would be "a lot of time to look back on what the regulators did and didn't do, and why the bank management didn't get this right." He called it a matter of "banking 101, managing interest rates risks."
"And what we've got to focus on right now is how do we make sure there's not contagion, and at the same time, you know, believe that the SVB can be acquired," he said.
Sen. Kevin Cramer, R-N.D., who voted for the 2018 law when he was in the House, also stood by it.
"They certainly don't need any more regulation. That doesn't mean that you can be mismanaged," he said Sunday on NBC's "Meet The Press." "We have seen a rather sharp increase in interest rates, which have put some smaller banks at odds with their own balance sheet. And now, of course, we have the Federal Reserve trying to change its balance sheet at the same time. And perhaps we need to do a little more review of all of that. But I don't think smaller banks need more oversight and more regulation — maybe better oversight, but certainly not more regulation."
Another proponent of the bank deregulation measure was Sen. Kyrsten Sinema, I-Ariz., who was a member of the House and running for Senate at the time.
Rep. Ruben Gallego, D-Ariz., who is running for Sinema's seat in 2024, voted against the 2018 legislation and issued a statement Monday attacking her.
"What's the difference between Senator Sinema and me?" Gallego said. "When bank lobbyists asked me to weaken bank regulations, I said no. When they asked Senator Sinema, she asked how much —and voted yes. Now we are all going to pay for her mistake."
Sahil Kapur
Sahil Kapur is a senior national political reporter for NBC News.
Julia Jester and Scott Wong contributed.
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"And now you know the rest of the story" - Paul Harvey
"SURPRISE! SURPRISE! SURPRISE!" - Gohmer Pyle
What specific provisions of the deregulation led to the failure at SVB?
Because the bank managers were more concerned with being "woke" then actually running a functioning bank.
But don't let facts get in the way.
Guess having good management that runs a fiscally sound business is secondary to being properly "woke".
How would increased oversight have prevented a bank run? None of these advocates for regulation are explaining what SVB did that was risky.
From what has been reported, SVB didn't break any laws and SVB was not trying to game the system. The bank run forced SVB to sell Federal treasuries at a loss. How would increased oversight and regulation have prevented that?
Increased oversight would require more liquidity to cover depositors and yellow flags would have gone up before the bank dumped too much of their capital into those long term investments.
Federal treasuries are liquid assets that can be immediately sold for cash. Banks use Federal treasuries to maintain liquidity. The problem is that the value of Federal treasures has dropped by 2.5 pct (or more) over the last year.
If Federal treasuries are too risky then what else can banks use to secure deposits?
And Biden has been in office since 2021. That means there was 2 years to fix this. But lets not worry about the facts and run with fiction.
Nah, it's just another attempt to go after the big bad orange man.
Biden is President and controlled Congress for 2 years. How can you expect him to accomplish something that Trump was able to do?
I don't expect Biden to be able to blink and breathe without assistance.
It's been amusing watching some of the Biden apologists make this argument only to have video of them supporting the move appear right after.
Well over 2 years later and they are still playing the" but but but trump" card. They must have temporarily run out of "but but but it's racist" cards.
First, just because some politician claims that the law led to the bank collapse, that doesn’t make it true.
Second, that law passed with bipartisan support. Several Democrats voted for it.
Third, if was such a shitty and dangerous law, why didn’t President Hindsight do something about it before now?
Got that right. Hell, many democrats were co-sponsors of the bill.
How many equals several?
How many republicans voted for it compared to Democrats?
I mean . . . The answers to your question are in the article. Just scroll up.
Some don't want answers, they just want to deflect from the conversation.
I asked Tacos before I actually read the article. My mistake. I saw the emphasis on several and failed to check the source. But there you go with your usual insults.
Couldn't tacos have just said 17 or whatever?
Once Glass Steagall bill was diluted and finally done away with in 1999 the race was on to financial meltdowns. 2008 the big meltdown and then Dodd-Frank which was not nearly as strong as Glass Steagall came into effect and it too was watered down in 2018. And then, SVB et al.
What in the world did people think was going to happen? We need to go back to Glass Steagall when banks were banks and not brokerage houses playing with depositor's money.
BTW, members of both parties are responsible for this CF.
How would have Glass Steagall prevented the commercial bank credit losses on bad real estate loans? How would it have kept Lehman Brothers, Bear Stearns, AIG investment bank out of troub
"Look at all the grief I got for signing the bill that ended Glass-Steagall. There's not a single, solitary example that it had anything to do with the financial crash." Bill Clinton
Bill was not renowned for honesty.
It wouldn't have. But that's not how they failed.
GS would have kept depositor money out of credit default swaps and derivatives on them.
That said, nothing in Dodd-Frank would have prevented SVB from failing. They would have passed the stress tests. Had they failed the stress tests, the remedy would have been to do more of what ultimately resulted in their closure.
None of the banks that failed in the last week would have been in violation of Glass Steagall.
That is possible but if the 2018 bill moved them from a $50B cap to a $250B cap they would have come under the more strict Dodd-Frank provisions for major banks. As they became, in some politicians, industry execs, and lobbyists' eyes, not a systemic risk if they failed seemed to be proved false since it looks as if they brought us to the brink once again.
The one provision that seems to stand out that they are exempt from is the ''standard liquidity ratio'' required by all the major banks. I've read the article that states that probably it would not have stopped SVB problem. Probably doesn't work well as far as I'm concerned.
A couple of other things that were a bit stunning was SVB went without a ''risk officer'' for most of 2022 and that the CEO and CFO seemed to be out of touch with what was happening in the financial world with the feds raising interest rates on a regular basis and signaling that they would continue.
So, with the amount of money that the financial sectors pour into lobbyists and then into politicians we may see nothing done and we'll be facing another crisis in a few years.
Apparently, that would not have mattered.
I agree. They made some poor business decisions that look inexplicable in hindsight. Surely that had to know interest rates would rise eventually. Everybody else did.
It's a business issue, not a regulatory issue.