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 for those rules to be restored as the federal government steps in to protect SVB depositors.
“Congress, the White House and bank regulators should reverse the dangerous banking deregulation of the Trump era. Repealing the 2018 legislation that weakened the rules for banks like SVB 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 the Senate, said she is working on legislation in the House to reverse the 201[ads1]8 law, which was spearheaded by Republicans and signed by then-President Donald Trump.
“Congress — in a bipartisan vote — fell to Wall Street and loosened the nation’s banking laws. I have no problem standing up to Wall Street, so I’m writing legislation to reverse that dodgy law,” she wrote in an email to the supporters on Sunday. .
President Joe Biden also said in a speech Monday announcing federal actions that the deregulation law played a role and urged Congress to tighten banking rules.
“Under the Obama-Biden administration, we put tough requirements on banks, like Silicon Valley Bank and Signature Bank, including the Dodd-Frank Act to make sure the crisis we saw in 2008 wouldn’t happen again,” he said. “Unfortunately, the last administration rolled back some of these requirements. I will be asking Congress and banking regulators to strengthen the rules for banks to make these types of bank failures less likely to happen again and to protect American jobs and small businesses.”
The battle for the 2018 law
Five years ago, Warren was the most outspoken opponent of the Republican-led Congress’s push to undo regulations imposed under the 2010 Dodd-Frank Act on small and medium-sized banks. The bill, spearheaded 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, mid-sized banks were exempted from these regulations.
“Had Congress and the Federal Reserve not rolled back the stricter oversight, SVB 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 strengthen their business. But because these requirements were lifted, when an old-fashioned bank run hit SVB, the bank could not withstand the pressure – and Signature’s collapse soon followed.”
Sen. Bernie Sanders, I-Vt., who also opposed the 2018 law, blamed it for the collapse of Silicon Valley Bank.
“Let’s be ready. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation law 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 that found this legislation would ‘increase the likelihood that a large financial firm with assets between $100 billion and $250 billion would fail.'”
The 2018 battle featured intense lobbying by banks — including Silicon Valley Bank and a number of smaller community banks — seeking regulatory relief.
In the Senate, it took a few Democrats to defeat a filibuster and obtain 60 votes. Warren enraged some colleagues when she called out some Senate Democrats by name for trying to weaken the Dodd-Frank rules.
The tension boiled over into a contentious March 2018 meeting between Senate Democratic chiefs of staff before the vote, according to two sources familiar with the closed-door clash.
Dan Geldon, who was Warren’s boss at the time, “took a beating” from other bosses who were angry that Warren was targeting their bosses, a source said. Geldon stood her ground, telling them that banking supervision was a signature issue for her and that no one should be surprised that she would call out those who want to roll back Dodd-Frank, both sources said.
One of the sources said it was an “abnormally contentious boss meeting”. The other said it was so heated it felt “like chair throwing”. Days later, 17 Democrats joined a unanimous Senate Republican conference to pass it. It passed the House 258-159, winning 225 Republicans and 33 Democrats. Trump signed it into law.
Geldon declined to comment on the meeting.
“Appropriate level of regulation”
One of those Democrats, Sen. Mark Warner of Virginia, defended the law Sunday when asked if he regrets supporting it.
“I think these mid-sized banks needed some regulatory relief,” Warner said on ABC’s “This Week,” adding that the law “imposed an appropriate level of regulation on mid-sized banks.”
Warner said there would be “a lot of time to look back at what regulators did and didn’t do and why bank management didn’t get this right.” He called it a question of “banking 101, managing interest rate risk.”
“And what we have to focus on right now is how do we ensure that there is no contagion, and at the same time you think that SVB can be bought,” he said.
Sen. Kevin Cramer, RN.D., who voted for the 2018 law when he was in the House, also stood by it.
“They certainly don’t need more regulation. That doesn’t mean you can be mismanaged,” he said Sunday on NBC’s “Meet The Press.” “We’ve seen a pretty sharp increase in interest rates, which has put some smaller banks on edge with their own balance sheets. And now, of course, we have the Federal Reserve trying to change the balance sheet at the same time. And maybe we need to do a little more review of all of this. But I don’t think smaller banks need more supervision and more regulation – maybe better supervision, 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 the Senate at the time.
Rep. 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 is the difference between Senator Sinema and me?” Gallego said. “When banking lobbyists asked me to weaken banking regulations, I said no. When they asked Senator Sinema, she asked how much — and voted yes. Now we will all pay for her mistake.”