FOR IMMEDIATE RELEASE
March 13, 2023
Bank Collapses Underscore Need for Tough, Broad Oversight Now
Washington, D.C. – The swift demise of Silicon Valley Bank and Signature Bank and the actions taken by the federal regulators over the weekend underscore the folly of the partial rollback of the Dodd-Frank law in 2018 and the need, looking forward, for strict oversight of large banks and the entirety of the financial system.
“Rolling back common-sense safeguards to ensure banks were liquid enough to pay their depositors was clearly the wrong decision,” said Renita Marcellin, the advocacy and legislative director at Americans for Financial Reform. “These banks would have faced a tougher risk management framework under the original Dodd-Frank law. But bipartisan majorities in Congress weakened the law in 2018 and Trump-appointed regulators took it even further.”
Congress should repeal the 2018 legislation, and take up additional measures to protect financial stability and the public interest. But regulators should not wait; they can take steps now to make the system more stable while protecting consumers and investors. They should strengthen bank capital and liquidity rules and make use of the Financial Stability Oversight Council and the Office of Financial Research to identify emerging risks, designate firms as systemically important, and properly regulate both banks and non-banks. They should also implement the Dodd-Frank mandate to limit executive compensation.
Now is the time for the Fed to act swiftly and to resist calls from big banks and Republicans to weaken a planned update to bank capital rules, known as the “Basel endgame,” and a broader review initiated by Vice Chair Michael Barr. Barr should also increase bank supervision after it was dramatically rolled back by his predecessor and conduct a full investigation into why bank examiners missed the glaring signs. Authorities should also probe reports about bonuses being paid hours before Silicon Valley Bank was closed.
“The collapse of these banks gives the Fed all the more reason to resist the self-interested arguments from banks and their allies in Congress,” Marcellin said. “No one should give these arguments a sympathetic ear. Banks should not receive government backstopping when things go wrong and simultaneously lobby for weaker rules. Ordinary Americans are not afforded the same benefits when their finances are in the red.”
In 2018, Congress passed and Trump signed S. 2155, a law that stripped away enhanced supervision from banks with between $50 and $250 billion in assets, though it left the Federal Reserve leeway to reimpose it for banks in the $100-$250 billion range. But the Fed went further than Congress in its implementation of the law, as former Governor Lael Brainard noted at the time.
After the law passed, both Silicon Valley Bank and Signature Bank passed thresholds that would have led to meaningful supervision before the 2018 law was passed. Both banks lobbied for the legislation and made campaign contributions to get what they wanted.