Democrats defend deregulation vote amid play to blame banks

Leona Gilbert1 week ago

Democrats on Capitol Hill are defending their vote on the 2018 banking deregulation bill that President Biden and others in the party blame for the stunning collapse of Silicon Valley Bank and Signature Bank last week.

Forty-nine Democrats — 33 in the House and 16 in the Senate — plus Senator Angus King (Maine), who holds Democratic caucuses, joined the Republicans in 2018 to pass deregulation legislation.

Nineteen of them are still in the House of Representatives, and all of them are to meet with voters next year, and 12 are in the Senate, five of whom are due for re-election in 2024. Senator Kirsten Sinema (D-Arizona), who was in the House of Representatives as a Democrat in 2018 and voted in favor of the deregulation bill, is also up for reelection next year.

Supporters of the legislation that former President Trump signed into law saw it as a way to make life easier for small and medium-sized banks that were struggling with the strict rules enacted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. adopted after the 2008 financial crisis.

But a number of Democrats are now blaming the rollback on the failure of Silicon Valley Bank and Signature Bank, which were deregulated in 2018, putting supporters of the measure on the defensive as the banking accusation game heats up on Capitol Hill.

Asked if she regrets voting for the bill, Senator Debbie Stabenow (D-Michigan), a member of the leadership of the Democratic Party, who is resigning next year, told The Hill: “Not at all.”

“It was very important to me to make sure that our small banks, local banks and credit unions, which were not the cause of the 2008 financial crisis, were given some flexibility,” she said.

Rep. Josh Gottheimer (DN.J.) also said he did not regret his rollback vote, calling Dodd-Frank rules “impossible” for small, medium and regional banks.

“You had a set of rules that literally applied to several of the largest institutions in the country, as well as our small, medium and regional banks. It was impossible and they were all actually merged and sold to bigger banks and there are no community banks left in this country,” he told CNN on Tuesday.

The 2018 bill, formally known as the Growth, Regulatory Relaxation, and Consumer Protection Act, exempted some banks from the stricter Federal Reserve oversight and Dodd-Frank Act stress tests by raising the asset threshold for those rules from 50 to 250. billion dollars. .

Silicon Valley Bank and Signature Bank fell into this range.

“Let’s be clear. The failure of Silicon Valley Bank is a direct result of the absurd bank deregulation bill signed by Donald Trump in 2018, which I strongly opposed,” Senator Bernie Sanders (I-Vt.) wrote in a statement.

Senator Elizabeth Warren (D-Mass.), who voted against the 2018 bill and is now leading efforts to repeal it, said Silicon Valley Bank (SVB) and Signature Bank “would be subject to more stringent liquidity and capital requirements to withstand financial turmoil” if Congress and the Federal Reserve would not have given up on stricter oversight.

“They would need to conduct regular stress tests to identify their vulnerabilities and strengthen their business,” she said. wrote in a New York Times article. “But due to the fact that these requirements were canceled when the old-fashioned banking run hit SVB‌, the bank could not withstand the pressure – and the collapse of Signature was already close.

Silicon Valley Bank, a California-based institution that primarily catered to startups, came under the scrutiny of federal regulators last Friday after a massive run on the bank due to liquidity problems. A few days later, government authorities seized Signature Bank, a New York-based institution that mainly did business with real estate companies and law firms, following another rush by clients to withdraw deposits.

The collapse of the Signature Valley bank was the second largest bankrupt in American history, and the failure of Signature Bank was the third largest.

Senator Tim Kaine (D-Virginia), who supported his vote on the deregulation bill in 2018, told The Hill that Old Dominion lost some of its banks between 2010 and 2018 due to smaller banks having to hire compliance departments. decided to sell to larger institutions, which led to the closure of branches and layoffs of employees.

“My public banks, when you’re in business for a few years, how would you sort this out. They said, hey, look, a law that was designed to stop too big to fail is also accelerating too small to succeed,” said Kane, who is due for re-election in 2024.

“Public banks, when [2018] the bank account has been drawn up, they’re like, we strongly support it. They have been very supportive and still are, and they have done well in Virginia over the past few years,” he added.

Senator Gary Peters (D-Michigan) also said he did not regret his 2018 vote in support of the deregulation bill and cautioned against jumping to conclusions about the cause of the crashes.

“I don’t know all the facts,” Peters said. “Now we have an investigation going on; The feds will look into exactly what happened. I don’t think we should jump to conclusions, so we’re actually investigating and looking at the facts.”

The Justice Department and the Securities and Exchange Commission are investigating the collapse of the Silicon Valley bank, and the Federal Reserve has launched its own investigation. The central bank said a review of the investigation, which is being led by supervisory vice chairman Michael Barr, will be published on May 1.

Senator Chris Koons (D-D), who voted in favor of the 2018 bill, said it was “premature” to link the five-year-old bill to last week’s crash.

“I think it’s premature to say that we know that this regulatory action under the previous administration — or this legislative action under the previous administration — made a difference,” he told The Hill. “We don’t know.

The senator cited other factors that could have led to the bank’s collapse, including management errors, failure to plan for inflation risk, and failure of regulatory oversight.

However, Warren and Rep. Kathy Porter (R-Calif.) draw a straight line between unsustainable banks and the 2018 bill. The progressive couple, along with dozens of other Democrats, introduced a bill Tuesday that would reverse the 2018 Dodd-Frank rollback, restoring the regulatory threshold to $50 billion.

The legislation came after Biden this week urged Congress and banking regulators to “strengthen rules for banks to reduce the likelihood of this kind of bank failure happening again and to protect American jobs and small businesses.”

Stabenow said she has concerns about the threshold under the Warren-Porter bill.

“Initially, I supported the bill because I thought the $50 billion threshold was too low. And so she moves it back down to this. So that’s my question, she said.

“And I think we need to look at what really happened here? I mean the complete incompetence of this bank, of course. And the question is, what will matter? That’s what interests me,” she added, later saying, “I think we’re just looking, you know what we can do to resolve this situation without going back to hurting small banks.”

Koons said it was “premature” to consider “concrete solutions” when the cause of the bank’s collapse remains unknown, and Kane said he wanted to see Barr’s analysis first before making a decision on Warren’s account.

Warren Central to Banking Struggle Since SVB Collapse Six Key Players to Watch in Banking Crisis

But if Barr says canceling the rollback would be a good idea, Kane said he would “be supportive.”

One supporter of Warren’s bill may be Rep. Andre Carson (D-Ind.), who supported the 2018 rollback. Asked about his vote, the congressman told The Hill in a statement that in light of the bank shutdowns, it’s time to bring standards back to Dodd-Frank.

“In light of recent events, I believe it is time to review and update these changes to bring the requirements in line with our original Dodd-Frank standards, which I proudly voted to establish,” he told The Hill. “This will help strengthen our financial system so that it remains resilient and reliable during economic ebb and flow.”

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