WASHINGTON — The failures of Silicon Valley Bank and Signature Bank are drawing new attention to a 2018 law that rolled back some banking rules. Some Democrats are calling for these rules to be brought back as the federal government steps in to protect SVB depositors.
“Congress, the White House, and banking regulators should undo the dangerous loosening of rules on banks that happened during the Trump administration. Repealing the 2018 law that made the rules for banks like S.V.B. less strict must be Congress’s top priority right away “Sen. Elizabeth Warren, D-Massachusetts, wrote an opinion piece for The New York Times on Monday.
Rep. Katie Porter, a Democrat from California who is running for the Senate, said that she is working on a bill in the House to undo the 2018 law, which was led by Republicans and signed by President Trump at the time.
“With a vote from both parties, Congress gave in to Wall Street and loosened our banking laws. I don’t mind standing up to Wall Street, so I’m writing a bill to get rid of that dangerous law “Sunday, she sent an email to people who had helped her.
In a speech Monday, President Joe Biden also said that the deregulation law played a role and asked Congress to make bank rules stricter.
“During the Obama-Biden administration, we put strict rules on banks like Silicon Valley Bank and Signature Bank, like the Dodd-Frank law, so that the 2008 crisis wouldn’t happen again,” he said. “Some of these rules were weakened by the last government, which is a shame. I’m going to ask Congress and banking regulators to make it harder for this kind of bank failure to happen again and protect American jobs and small businesses by tightening the rules for banks.”
The fight over the law for 2018
Five years ago, Warren was the most vocal person against the Republican-led Congress’s efforts to get rid of the rules that the 2010 Dodd-Frank law put in place for small and medium-sized banks. The bill, which was led by Sen. Mike Crapo, R-Idaho, was meant to change the “too big to fail” rule, which meant that regulators would look at these companies more closely. By raising the limit from $50 billion to $250 billion in assets, medium-sized banks were taken out of the rules.
“Had Congress and the Federal Reserve not rolled back the stricter oversight, S.V.B. and Signature would have had to meet stronger liquidity and capital requirements to handle financial shocks,” Warren wrote on Monday. “They would have had to do regular stress tests to find out where their businesses were weak and how to fix them. But since those rules were no longer in place, when an old-fashioned bank run hit S.V.B., the bank couldn’t stand up to the pressure, and Signature was soon to follow.
Sen. Bernie Sanders (I-VT), who was also against the 2018 law, said that it was to blame for the failure of Silicon Valley Bank.
“Let’s be sure. “The failure of Silicon Valley Bank is a direct result of a stupid bill that Donald Trump signed in 2018 to loosen rules on banks, which I fought hard against,” he said in a statement. “Five years ago, the Republican Director of the Congressional Budget Office released a report saying that this bill would make it more likely that a large financial firm with assets between $100 billion and $250 billion would fail. ”
In 2018, banks, like Silicon Valley Bank and a number of smaller community banks, fought hard for regulatory relief through lobbying.
In the Senate, a filibuster had to be stopped by some Democrats in order to get 60 votes. Some of Warren’s colleagues were upset when she named some Senate Democrats who were trying to weaken Dodd-Frank rules.
Before the vote in March 2018, the tensions came to a head in a tense meeting between the Democratic chiefs of staff in the Senate, according to two people who were there.
One source said that Warren’s boss at the time, Dan Geldon, “took a clobbering” from other bosses who were angry that Warren was going after their bosses. Geldon stood his ground and told them that bank oversight was one of her signature issues and that no one should be surprised that she would call out those who want to roll back reforms. Both sources said Dodd-Frank.
One of the sources said that it was a “unusually tense meeting of chiefs.” The other person said that it was so hot that it felt like “throwing chairs.” A few days later, 17 Democrats joined all of the Republicans in the Senate to vote for it. It passed the House with 258 Republicans and 159 Democrats in favour. Trump’s signature made it a law.
Geldon didn’t say anything about the meeting.
“Just the right amount of rules”
Sen. Mark Warner of Virginia, who is a Democrat, defended the bill on Sunday when asked if he regrets supporting it.
Warner said on ABC’s “This Week” that “I do think these midsized banks needed some regulatory relief,” and that the law “put in place an appropriate level of regulation for midsized banks.”
Warner said, “There will 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 said that it was just “banking 101” to deal with the risks of interest rates.
“Right now, we need to think about how to make sure it doesn’t spread and, at the same time, how to believe that the SVB can be bought,” he said.
Sen. Kevin Cramer, a Republican from North Dakota, also stood by the 2018 law.
“They don’t need any more rules, that’s for sure. “But that doesn’t mean you can’t be managed badly,” he said on NBC’s “Meet the Press” on Sunday.” “Interest rates have gone up pretty quickly, which has put some smaller banks in conflict with their own balance sheets. The Federal Reserve is also trying to change its balance sheet at the same time. And maybe we need to talk about all of that again. But I don’t think smaller banks need more oversight and regulations. They might need better oversight, but not more.”
Sen. Kyrsten Sinema, D-Ariz., who was in the House at the time and running for the Senate, was also in favour of deregulating banks.
Rep. Ruben Gallego, a Democrat from Arizona who wants Sinema’s seat in 2024, voted against the 2018 bill and attacked her in a statement on Monday.
“What makes Senator Sinema different from me?” Gallego said. “I said no when bank lobbyists asked me to weaken rules about banks. When Senator Sinema was asked, she asked how much and then voted yes. Now we’ll all have to pay for what she did wrong.”
This story was first posted on NBCNews.com.
More Read: Copa America Drama: Ecuador Scores Bizarre Own Goal vs. Jamaica
