Silicon Valley Bank collapse puts new spotlight on a 2018 bank deregulation law

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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 to restore those rules as the federal government steps in to protect SVB depositors.

"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," Sen. Elizabeth Warren, D-Mass., wrote in a New York Times opinion piece Monday.

Rep. Katie Porter, D-Calif., who is running for Senate, said she's working on legislation in the House to reverse the 2018 law, which was led by Republicans and signed by then-President Donald Trump.

"Congress—in a bipartisan vote—caved to Wall Street and loosened our nation’s banking laws. I have no problem standing up to Wall Street, so I’m writing legislation to reverse that risky law," she wrote in an email to supporters Sunday.

President Joe Biden also said in a speech Monday announcing federal actions that the deregulation law played a role and called on Congress to toughen bank rules.

"During the Obama-Biden administration, we put in place tough requirements on banks, like Silicon Valley Bank and Signature Bank, including the Dodd-Frank law to make sure that the crisis we saw in 2008 would not happen again," he said. "Unfortunately, the last administration rolled back some of these requirements. I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again and to protect American jobs and small businesses."

The fight over the 2018 law

Five years ago, Warren was the most outspoken opponent of the Republican-led Congress' push to undo regulations imposed under the 2010 Dodd-Frank law for small and midsize banks. The bill, led 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, medium-size banks were exempted from those regulations.

“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,” Warren wrote Monday. “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.”

Sen. Bernie Sanders, I-Vt., who also opposed the 2018 law, blamed it for Silicon Valley Bank's collapse.

“Let’s be clear. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill 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 finding that this legislation would ‘increase the likelihood that a large financial firm with assets of between $100 billion and $250 billion would fail.’”

The 2018 battle featured intense lobbying by banks — including Silicon Valley Bank and an array of smaller community banks — that were seeking regulatory relief.

In the Senate, it needed some Democrats to defeat a filibuster and achieve 60 votes. Warren infuriated some colleagues when she called out some Senate Democrats by name for trying to weaken Dodd-Frank rules.

The tensions boiled over into a contentious March 2018 meeting among Senate Democratic chiefs of staff before the vote, according to two sources familiar with the closed-door clash.

Dan Geldon, who was Warren’s chief at the time, “took a clobbering” from other chiefs who were angry that Warren was making their bosses a target, said one source. Geldon stood his ground and told them that bank oversight was a signature issue for her and that nobody 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 chiefs 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 cleared 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 legislation Sunday when asked if he regrets supporting it.

"I do think these midsized banks needed some regulatory relief," Warner said on ABC's "This Week," adding that the law "put in place an appropriate level of regulation on midsized banks."

Warner said there would 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 called it a matter of "banking 101, managing interest rates risks."

"And what we've got to focus on right now is how do we make sure there's not contagion, and at the same time, you know, believe that the SVB can be acquired," he said.

Sen. Kevin Cramer, R-N.D., who voted for the 2018 law when he was in the House, also stood by it.

"They certainly don't need any more regulation. That doesn't mean that you can be mismanaged," he said Sunday on NBC's "Meet The Press." "We have seen a rather sharp increase in interest rates, which have put some smaller banks at odds with their own balance sheet. And now, of course, we have the Federal Reserve trying to change its balance sheet at the same time. And perhaps we need to do a little more review of all of that. But I don't think smaller banks need more oversight and more regulation — maybe better oversight, 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 Senate at the time.

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’s the difference between Senator Sinema and me?” Gallego said. “When bank lobbyists asked me to weaken bank regulations, I said no. When they asked Senator Sinema, she asked how much —and voted yes. Now we are all going to pay for her mistake.”

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