WASHINGTON — President Joe Biden asked regulators to reinstate rules that would give tougher oversight to banks between $100 billion and $250 billion in assets, a range that would have included Silicon Valley Bank and Signature Bank.
In the aftermath of the two bank failures and the panic that ensued after regulators declared a systemic risk exception, policymakers have tried to figure out to what degree bank regulation should be shifted to account for the problems that precipitated the collapse.
The Biden administration is apparently prioritizing a rollback of rules enacted by regulators appointed by former President Trump. In a fact sheet released by the White House, Biden claimed that the Dodd-Frank Act rules would have put Silicon Valley Bank under more scrutiny.
"Unfortunately, Trump administration regulators weakened many important common-sense requirements and supervision for large regional banks like Silicon Valley Bank and Signature Bank, whose recent failure led to contagion," the White House said.
The White House cited a Yale University analysis that it says found that Silicon Valley Bank would have, as of the end of 2022, been well below the liquidity threshold that would have applied had the Trump administration not "exempted the bank from those rules."
"As we just saw, Silicon Valley Bank's liquidity stress contributed to its failure and quickly transmitted to other banks," the White House said. "Bank regulators are encouraged to consider reinstating these requirements and using rigorous liquidity stress tests that factor in the risks of faster withdrawals in an always-on online environment."
Specifically, the White House called for annual supervisory stress tests, comprehensive living wills and strong capital requirements.
The administration asked to shorten compliance periods for these changes, citing a three-year transition period in which Silicon Valley Bank could avoid capital stress tests after clearing the $100 billion threshold. It also asked for stronger supervisory tools and expanding long-term debt requirements to a broader range of banks.
Notably, the White House also asks the Federal Deposit Insurance Corp. to make sure the cost of replenishing the Deposit Insurance Fund isn't borne by community banks. The FDIC has some discretion in how it implements a special assessment to recoup the cost of the Deposit Insurance Fund after paying out the costs of unwinding Silicon Valley Bank and Signature Bank.
The White House's statement falls short of calling for new laws, however. Under a Republican-controlled House, it's unlikely that any legislation would make it to Biden's desk.
"Each of these items can be accomplished under existing law, and they build upon regulatory reforms already on this administration's agenda, like completion of the executive compensation rule for bank executives authorized under
Republicans immediately pushed back to Biden's call. Rep. Patrick McHenry, R-N.C., chairman of the House Financial Services Committee, criticized the administration for "politicizing" the banking turmoil.
"The Biden administration continues to politicize the failure of SVB and Signature Bank to push long-held progressive priorities unrelated to the causes of the collapses," he said. "As we heard from Biden's own regulators at our hearing yesterday, supervisory incompetence was the leading cause of the failures. There is no evidence that the original Dodd-Frank would have prevented these bank runs."
