[ These bank failures were entirely avoidable if Congress and the
Fed had done their jobs and kept strong banking regulations in place]
[[link removed]]

ELIZABETH WARREN: SILICON VALLEY BANK IS GONE. WE KNOW WHO IS
RESPONSIBLE.  
[[link removed]]


 

Elizabeth Warren
March 13, 2023
The New York Times
[[link removed]]


*
[[link removed].]
*
[[link removed]]
*
*
[[link removed]]

_ These bank failures were entirely avoidable if Congress and the Fed
had done their jobs and kept strong banking regulations in place _

Clients and journalists outside Silicon Valley Bank on Monday. , Jim
Wilson/The New York Times

 

No one should be mistaken about what unfolded over the past few days
in the U.S. banking system: These recent bank failures are the direct
result of leaders in Washington weakening the financial rules.

In the aftermath of the 2008 financial crisis, Congress passed the
Dodd-Frank Act to protect consumers and ensure that big banks could
never again take down the economy and destroy millions of lives. Wall
Street chief executives and their armies of lawyers and lobbyists
hated this law. They spent millions trying to defeat it, and, when
they lost, spent millions more trying to weaken it.

Greg Becker, the chief executive of Silicon Valley Bank, was one of
the ‌many high-powered executives who lobbied Congress to weaken the
law. In 2018, the big banks won. With support from both parties,
President Donald Trump signed a law to roll back critical parts of
Dodd-Frank. Regulators, including the Federal Reserve chair Jerome
Powell, then made a bad situation worse, ‌‌letting financial
institutions load up on risk.

Banks like S.V.B. ‌— which had become the 16th largest bank in the
country before regulators shut it down on Friday
[[link removed]] ‌—‌
got relief from stringent requirements, basing their claim on the
laughable assertion that banks like them weren’t actually “big”
‌and therefore didn’t need strong oversight. ‌

I fought against these changes. On the eve of the Senate vote in 2018,
I warned‌
[[link removed]],
“Washington is about to make it easier for the banks to run up risk,
make it easier to put our constituents at risk, make it easier to put
American families in danger, just so the C.E.O.s of these banks can
get a new corporate jet and add another floor to their new corporate
headquarters.”

I wish I’d been wrong. But on Friday, S.V.B. executives were busy
paying out congratulatory bonuses
[[link removed]] hours
before the Federal Deposit Insurance Corporation‌‌ rushed in to
take over their failing institution — leaving countless businesses
and non‌profits with accounts at the bank alarmed that they
wouldn’t be able to pay their bills and employees.

S.V.B. suffered from a toxic mix of risky management and weak
supervision. For one, the bank relied on a concentrated group of tech
companies with big deposits, driving an abnormally large ratio of
uninsured deposits‌. This meant that weakness in a single sector of
the economy could threaten the bank’s stability.

Instead of managing that risk, S.V.B. funneled these deposits into
long-term bonds, making it hard for the bank to respond to a drawdown.
S.V.B. apparently failed to hedge against the obvious risk of rising
interest rates. This business model was great for S.V.B.’s
short-term profits, which shot up by nearly 40 ‌percent over the
last three years‌ — but now we know its cost.

S.V.B.’s collapse set off looming contagion that regulators felt
forced to stanch, leading to their decision to dissolve Signature
Bank. Signature had touted its F.D.I.C. insurance as it whipped up a
customer base tilted toward risky cryptocurrency firms.

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. 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.

On Sunday night, regulators announced they would ensure that all
deposits at S.V.B. and Signature would be repaid 100 cents on the
dollar. Not just small businesses and nonprofits, but also
billion-dollar companies, crypto investors and the very venture
capital firms that triggered the bank run on S.V.B. in the first place
— all in the name of preventing further contagion.

Regulators have said that banks, rather than taxpayers, will bear the
cost of the federal backstop required to protect deposits. We’ll see
if that’s true. But it’s no wonder the American people are
skeptical of a system that holds millions of struggling student loan
borrowers in limbo but steps in overnight to ensure that
billion-dollar crypto firms won’t lose a dime in deposits.

These threats never should have been allowed to materialize. We must
act to prevent them from occurring again.

First, 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. Similarly, ‌Mr.
Powell’s disastrous “tailoring
[[link removed]]”
of these rules has put our economy at risk, and it needs to end —
‌now. ‌

Bank regulators must also take a careful look under the hood at our
financial institutions to see where other dangers may be lurking.
Elected officials, including the Senate Republicans who, just days
before S.V.B.’s collapse, pressed Mr. Powell to stave off higher
capital standards, must now demand stronger — not weaker —
oversight.

Second, regulators should reform deposit insurance so that both during
this crisis and in the future, businesses that are trying to make
payroll and otherwise conduct ordinary financial transactions are
fully covered — while ensuring the cost of protecting outsized
depositors is borne by those financial institutions that pose the
greatest risk. Never again should large companies with billions in
unsecured deposits expect, or receive, free support from the
government.

Finally, if we are to deter this kind of risky behavior from happening
again, it’s critical that those responsible not be rewarded. S.V.B.
and Signature shareholders will be wiped out, but their executives
must also be held accountable. Mr. Becker of S.V.B. took home
[[link removed]] $9.9
million in compensation last year, including a $1.5 million bonus for
boosting bank profitability — and its riskiness. Joseph DePaolo of
Signature got
[[link removed]] $8.6
million. We should claw all of that back, along with bonuses for other
executives at these banks. Where needed, Congress should empower
regulators to recover pay and bonuses. Prosecutors and regulators
should investigate whether any executives engaged in insider trading
‌or broke other civil or criminal laws.

These bank failures were entirely avoidable if Congress and the Fed
had done their jobs and kept strong banking regulations in place since
2018. S.V.B. and Signature are gone, and now Washington must act
quickly to prevent the next crisis.

_Elizabeth Warren is a United States senator for Massachusetts._

* Banking system
[[link removed]]
* Bank bailout
[[link removed]]
* Silicon Valley
[[link removed]]
* Senator Elizabeth Warren
[[link removed]]

*
[[link removed].]
*
[[link removed]]
*
*
[[link removed]]

 

 

 

INTERPRET THE WORLD AND CHANGE IT

 

 

Submit via web
[[link removed]]

Submit via email
Frequently asked questions
[[link removed]]

Manage subscription
[[link removed]]

Visit xxxxxx.org
[[link removed]]

Twitter [[link removed]]

Facebook [[link removed]]

 




[link removed]

To unsubscribe, click the following link:
[link removed]