Did the 2018 rollback cause this?
Expect this to be a fiery debate. Banking reform specialist Sen. Elizabeth Warren, D-Mass., is emphatically asserting that the 2018 deregulation by Republicans and the 2023 bank failures are connected.
On Tuesday,
she wrote a letter to Greg Becker, reminding the former CEO of Silicon Valley Bank that he personally pushed for deregulation in 2015.
“You urged lawmakers to raise the threshold,” for increased monitoring and stronger emergency plans, Warren wrote. “You derided these standards as ‘unnecessary compliance measures.’”
Warren and others with her view believe that had Dodd-Frank stayed intact, Silicon Valley Bank would have been forced, by the act’s standards, to take fewer of the risks that led to its collapse.
But one of Dodd-Frank’s namesakes, former Congressman Barney Frank, said yesterday that he
does not think that the 2018 reforms played a role.
“I don’t think that had any effect,”
Frank told Bloomberg. “I don’t think there was any laxity on the part of regulators in regulating the banks in that category,” meaning medium banks the size of SVB or Signature Bank.
Those who disagree point out that Frank sits on the board of Signature Bank and is directly involved.
Is this a bailout?
This is a complicated question, and the answer depends on how you define “bailout.”
The FDIC is removing its usual cap, which
guarantees up to $250,000 for each account. In the case of these banks, corporations had accounts and cash
far exceeding that.
To back up those amounts, the federal government is pulling from the FDIC’s usual insurance fund and assessing a special fee on larger banks, according to
Treasury official statements.
Thus, it
is a bailout in the sense that these banks were collapsing and the federal government has rushed in with the funds to make sure no one with money in the bank loses it.
It is
not a bailout in other ways. One, the banks have been closed, and the federal government is hoping to liquidate or sell their assets. (The FDIC has created “bridge” banks, like the “Signature Bridge Bank” in the meanwhile, to hold assets before the company is sold.)
In addition, federal regulators have repeatedly said that
no taxpayer dollars will be lost in the process.
For more about “bailout” — a word the White House has so far avoided —
see this article from NPR.
What will happen next?
We are in the wait-and-see period, where lawmakers in Washington put out press releases but do not yet debate concrete legislation or hold hearings.
But hearings are ahead — no doubt. Sources tell me timing is still unclear, but both sides of the Capitol are highly motivated to bring in banking executives and regulators to talk about what exactly happened here. The array of questions and issues include: the risks each bank took, how much regulators knew, the role of the cyber-currency industry (a prominent client at one of the banks), how executives handled the meltdown, and the role of Twitter in accelerating a sense of panic.
Legislation is possible, but faces a few hurdles. There are splits within each party about how to respond to these banking meltdowns. And for any bill to get to the president, it must be bipartisan enough to get 60 Senate votes.
Navigating the tricky banking landscape and emerging with 60 votes still intact seems a longshot. But watch in the next two weeks to see who attempts it.
