Facts about Trump’s deregulation of banks like SVB in 2018


after silicon valley bank crashed late last week following run at the bankVermont Senator Bernie Sanders controversial The culprit was clear: a “ridiculous” 2018 law signed by then-President Donald Trump that deregulated banks the size of SVB.

President Joe Biden didn’t directly blame the 2018 rollback for the SVB’s implosion like Sanders did, but he also criticized Trump’s law on Monday Comment on the banking system.Meanwhile, Trump has declined to play any role in the SVB mess, and his spokesman has defendant Democrats are trying to avoid their responsibilities by deceiving the public.

Here’s how the 2018 rollback affects banks like SVB, which supported the law in Congress, and what some analysts have to say about the law may have contributed to SVB’s situation.

in short, 2018 rollback Free some banks from the policies implemented after the financial crisis of 2007 and 2008 to prevent the collapse of these banks and the financial system.

A 2010 Act Signed by then-President Barack Obama, better known as the Dodd-Frank Act, imposed stricter rules on banks with at least $50 billion in assets.Banks deemed to be “systemically important” to the financial system are required to conduct annual Fed’s stress test“,maintain a certain level Capital (ability to absorb losses) and liquidity (ability to meet cash obligations quickly), and submit a “living will” plan If they fail, they disband quickly and orderly.

The 2018 rollback removed the $50 billion threshold, which many banks saw as an unnecessary hindrance.Instead, among many other changes, the rollback approach made the enhanced regulations standard Only available to banks with assets of at least $250 billion – There were only a dozen banks at the time.

The rollback law did give the Fed the option to apply the regulations to specific banks with at least $100 billion in assets, saying that banks that hit the $100 billion threshold would still face “regularFed stress test. Still, the change from the standard $50 billion threshold to the standard $250 billion threshold has been widely described as a major win for banks with assets below $250 billion.

The list includes SVB, whose chief executive Greg Becker has urged Congress to raise the bar.

Becker Arguing in 2015 congressional testimony Implementing regulation when a bank reached the $50 billion level would “unnecessarily” burden SVB, which had assets at the time approaching $40 billion, and require the company to spend time and money on compliance rather than paying to job-creating people offer loans. He also believes that SVB, like other “mid-sized” banks, is “not systemically risky”.

“Given the low-risk profile of our activities and business model,” Becker wrote, having to deal with Dodd-Frank regulations “will stifle our ability to extend credit to customers without any meaningful corresponding risk reduction .”

other banks and their supporter of congress Similar arguments were made.but many congressmen democrats and advocate The banking watchdog has warned that deregulation of key lenders could spark another crisis, noting that banks with assets of $50 billion to $249 billion are not insignificant local entities.nonpartisan congressional budget office wrote Before the bill passed, raising the bar would “increase the likelihood that large financial firms with assets between $100 billion and $250 billion will fail.”

SVB has $209 billion in assets late last year, according to FDIC data.

rollback law trump Signed in May 2018 It could fairly be described as bipartisan, though it has overwhelming support among congressional Republicans and is opposed by a majority of congressional Democrats.

The Senate passed the bill by a vote of 67 to 31.all 50 Voting Republicans Yes; 31 members of the Democratic caucus voted no, while 17 voted yes.CNN famous Nearly all Democratic supporters in the Senate at the time were “either running for re-election this fall, or coming from a red state or a purple state.”

House of Representatives passed the bill 258 to 159. Among Republicans, 225 votes in favor Only one person voted no; the Democratic caucus split 33 yes, 158 no.

Trump criticized Dodd-Frank and the “job-killing statute” when he signed the bill, formally known as the Economic Growth, Regulatory Relief and Consumer Protection Act. “It’s all about the Dodd-Frank disaster. They fixed it, or at least they’ve come a long way in fixing it,” he said of the bill’s supporters.

For obvious reasons, without the 2018 rollback, it’s impossible to say for sure if SVB would survive in another universe. There are many complex reasons for any bank failure. As a result, experts and supporters are divided on the extent to which Trump’s law played a role in SVB’s downfall.

john coffeeUnder the 2010 Dodd-Frank rules, SVB is likely to be “less vulnerable to bank runs,” the Columbia University law professor and corporate governance expert said in an email. Matthew RichardsonNew York University School of Business finance professor, said in an e-mail that while he disagrees with raising the threshold significantly to $50 billion in 2018, he believes that if the threshold was raised to $50 billion, “it would not be possible in this case.” would have any effect” was never raised.

Even with no change, Fed’s severe stress testwhich involves a hypothetical Great Recession, would not capture the current rate-rising scenario Troubled SVB Due to holding a large number of long-term bonds. The way the Fed calculates its capital requirements means the calculation doesn’t capture the fall in the value of SVB bonds, he said.

Dennis KelleherCEO of Better Markets, a nonprofit advocating financial reform, has been fierce rival 2018 rollback law, but he said in an interview on Monday that the law would likely have only a “modest impact” on SVB’s collapse. However, he did not absolve Trump of responsibility.Kelleher sees more important factor than rollback is how Trump appoints top Fed jobs Taking an Approach to Deregulation of Banks – Refuse to use many Supervisory power Even after the 2018 law, they still have.

Kelleher noted that there is nothing in the law that prevents the Fed from asking SVB to come up with a plan to address known problems with its balance sheet, from its high percentage of unincorporated depositors to the concentration of its customers in specific industries and geographic areas. “There’s a whole set of tools and sanctions to back up Fed regulators to make sure a bank doesn’t behave like this one. And yet, none of that seems to be happening,” Kelleher, who served on President Biden’s transition team, said Monday .

mike koncharThe director of macroeconomic analysis at the Roosevelt Institute, a progressive think tank, said he believed the message Congress sent when it rolled back in 2018 — that banks with assets below $250 billion were not a systemic threat — led bank examiners and regulators to “take a step back.” ’ in their scrutiny of banks below the new threshold, though he noted that it would be difficult to prove a direct link between the legislation and the softening. Konczal argues that without the 2018 law, SVB could still fail, but “they would fail in a less catastrophic way.” He believes Dodd-Frank rules would go a long way toward strengthening SVB’s assets balance sheet, which may at least allow the government to Find a post-collapse buyer Go to the bank on weekends.

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