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Biden raps 2018 bank changes, asks lawmakers to toughen rules

Silicon Valley Bank fell below the 'too big to fail' threshold raised in 2018 law

President Joe Biden addresses the media on Feb. 16.
President Joe Biden addresses the media on Feb. 16. (Tom Williams/CQ Roll Call)

President Joe Biden on Monday said he would ask Congress and regulators to strengthen the requirements for small banks, such as Silicon Valley Bank, after a bipartisan 2018 law eased them.

Biden’s remarks sharpen scrutiny of the 2018 law that has come under attack from some Democrats in Congress following a run on Santa Clara, Calif.-based SVB and the shuttering of Signature Bank in New York by state regulators. Banking regulators Sunday said they would step in to ensure customers of both banks could get their deposits. 

[Regulators to protect SVB, Signature depositors, but no bailout]

“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 a crisis we saw in 2008 would not happen again,” Biden said, referring to the 2010 financial overhaul law. “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.”

The 2018 law raised the threshold at which a bank would be considered “too big to fail” to $250 billion from $50 billion. Banks considered systemically important under the 2010 financial overhaul law were required to keep more capital on hand, undergo stress tests and produce a “living will” that would provide for their orderly dissolution. 

With $209 billion in assets at the end of last year, according to the FDIC, SVB would have been subject to enhanced requirements before passage of the 2018 law.  But the regulators nevertheless cited systemic risk as giving them authority to take Sunday’s actions.

Some progressive Democrats in Congress have been quick to blame the 2018 law, which passed with support from centrist Democrats, including co-sponsors Sens. Mark Warner of Virginia, Jon Tester of Montana and Joe Manchin III of West Virginia. Sen. Michael D. Crapo, R-Idaho, then the Senate Banking Committee chairman, introduced the bill. 

It isn’t clear whether SVB would have fared differently even it were still governed by tighter capital standards. Although Biden criticized the 2018 law, he didn’t explicitly say that was the change he was seeking from lawmakers.

In his remarks, Biden praised quick action by the Treasury Department, Federal Reserve and FDIC, and stressed the costs of covering deposits would not be borne by taxpayers.

“This is an important point, no losses will be borne by the taxpayers,” Biden said. “Second, the management of these banks will be fired. If the bank is taken over by FDIC, the people running the bank should not work there anymore. Third, investors in the banks will not be protected. They knowingly took a risk and when the risk didn’t pay off, investors lose their money. That’s how capitalism works.”

Bank regulators on Sunday said the FDIC’s Deposit Insurance Fund would be used to cover all deposits at the two banks, including those above the $250,000 deposit insurance limit. A fee assessed on banks would cover losses to the fund, the regulators said.

The Fed separately on Sunday announced the Bank Term Funding Program that for one year would ensure banks have the cash on hand to cover customer withdrawals. The program would lend money to banks, credit unions and other qualifying depository institutions using high-quality assets held by the institutions, such as Treasurys, agency debt or mortgage-backed securities, as collateral at par.

The action effectively means the Fed is telling the banking industry it will value some securities at higher than their market value.

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