WASHINGTON (AP) — Bills have been introduced, hearings scheduled and blame cast as Congress reacted last week to the brutal failure of two banks. A preview of what lawmakers are saying and planning as the fallout from the collapse of Silicon Valley Bank and Signature Bank continues.
RAPID LEGISLATIVE FIXES LIKELY
As President Joe Biden on Monday called on Congress to tighten rules for banks to prevent future defaultslegislators are divided on the need for legislation.
Some congressional leaders are skeptical of the action of a tightly divided Congress.
“There are people who are going to choose bills, but I can’t imagine that with the banks’ hold on Republican members of Congress, we’re ever going to pass anything significant,” Sen. Sherrod said. Brown, D-Ohio, Chairman of Senate Banking. , Housing and Urban Affairs Commission.
Republicans say the laws already in place were enough to prevent bank failures, if only regulators had done their job of spotting obvious problems and ordering banks to take action that would reduce their risk.
“If there are ideas that people have, you know, at some point we would be willing to entertain them, but I think it would be premature to start talking about solutions before we fully define the problem and discuss it. ‘finally getting answers from regulators on why they were sleeping on the job,’ said Sen. John Thune of South Dakota, the second Republican.
SO WHAT’S NEXT? The House Financial Services Committee announced its first hearing for March 29, with at least two witnesses: Martin Gruenberg, chairman of the board of the Federal Deposit Insurance Corp., and Michael Barr, vice chairman for the oversight of the Federal Reserve Board. governors. “We will conduct this hearing without fear or favor to get the answers the American people deserve,” the lawmakers said.
On the Senate side, Brown said his committee would also hold a hearing soon to help lawmakers assess what went wrong. He said the first hearing should focus on calling witnesses charged with regulating failing banks. The Fed Board was the primary regulator of Silicon Valley Bank in California, while the FDIC was the primary federal regulator of Signature Bank in New York.
Brown laid out some of the questions lawmakers are likely to have for regulators in a letter Thursday. asking them to undertake a full review of what was wrong. What role did social media-driven coordination between clients play? What role did the high percentage of uninsured deposits at Silicon Valley Bank play? Were there any capital, liquidity and stress testing regulatory loopholes that played a role in the failures?
Sen. Bill Hagerty, R-Tenn., said he wanted to know why regulators failed to act on detailed reports of a liquidity risk at Silicon Valley Bank and why the FDIC failed to sell to auction the remaining coins from the bank last weekend.
Sen. Cynthia Lummis, R-Wyo., said she wanted to know if regulators intended to use Signature Bank’s failure to crack down further on cryptocurrency. She has been a strong advocate for cryptocurrency development and is an investor in bitcoin. Signature was the first FDIC-insured bank to offer a blockchain-based digital payment platform in 2019 and has been a go-to bank for the crypto industry.
Sen. John Kennedy, R-La., said he wanted to know how private equity analysts had warned against Silicon Valley investments, but regulators seemed unaware of the potential problems.
CONGRESSIONAL ACTION Democrats in both houses have rallied around two legislative proposals. The first, from Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., would repeal the 2018 rollback of aspects of the Dodd-Frank law enacted after the financial crisis a decade earlier. .
The Dodd-Frank Act subjected all banks with assets of $50 billion or more to enhanced regulation, such as annual stress tests and the submission of resolution plans or “living wills” in the event of bankruptcy. .
But after years of complaints from community and regional banks about the cost of compliance, Congress raised the threshold for meeting all Dodd-Frank Act requirements to $250 billion.
Banks with assets valued at less than $100 billion were automatically exempted from the enhanced regulations. The Fed had the discretionary power to apply the enhanced supervision of banks between 100 and 250 billion dollars on a case-by-case basis. Silicon Valley Bank and Signature Bank fell into this category.
“President Trump’s pushback paved the way for the SVB’s collapse,” Sen. Dick Durbin, D-Ill, said Thursday.
But Republicans countered that the tiered oversight they established in 2018 with the support of multiple Democrats in both chambers gave federal regulators all the tools they needed to fix the problems in Silicon Valley and Signature before they become fatal.
“I think the problem here is liquidity and there are liquidity stress tests that regulators have set for banks,” said Sen. Mike Crapo, R-Idaho, and author of the 2018 changes. at Dodd Frank. “If they need to tighten them, they have the power to do so.”
With this philosophical divide, the Warren and Porter bill is unlikely to make progress in Congress.
A second bill might have a better shot. The bill by Sen. Richard Blumenthal, D-Conn., and Democratic Reps. Adam Schiff and Mike Levin of California would recoup all bonuses and profits bank executives receive from stock sales made in the 60 days before a bank failure.
Republicans also directed considerable anger at failed bank executives this week.
“I think all of that should be salvaged,” Kennedy said of the bonuses. “And this time, I hope someone goes to jail.”
On Friday, Biden called Congress to grant the FDIC the power to force the reimbursement of indemnities paid to directors of a wider range of banks in the event of bankruptcy, and to lower the threshold allowing the regulator to impose fines and to prohibit directors to work in another bank.
POINTING TO THE OTHER PART
The recent bank failures create an opportunity to shape political discourse for next year’s election.
While Republicans say regulators were “asleep at the switch,” they’re also trying to tie Biden and Democrats to turmoil by blaming them for higher inflation, which drives higher interest rates and lowers value. investment from Silicon Valley banks.
“Failure at the bank, failure with regulators, and no doubt, failure at the top,” said Sen. Tim Scott, R.S.C., in reference to Biden.
Democrats attribute the failures to Republican-led changes in reducing Dodd-Frank requirements for some banks, saying it’s an example of how Washington caters to powerful interest groups rather than average voters.
“The 2018 rollbacks allowed banks to take on more risk in order to increase their profits,” Warren said. “So what did they do? They took on more risk, increased their profits, gave their executives big bonuses and salaries, and then blew up the banks.