The legislation would exclude some bank assets from stricter regulation, the CBO explained to lawmakers, so passing it “would thus increase the likelihood that a large financial firm with assets of between $100 billion and $250 billion would fail.” Silicon Valley Bank said it had $212 billion in assets at the close of 2022.
The 2018 legislation rolled back parts of the Dodd-Frank Act, which Congress passed in the wake of the 2008 financial crisis, imposing stiffer regulations on banks with more than $50 billion in assets. The rules were designed to prevent the government from having to do another massive bank bailout like the one lawmakers approved in 2008.
Proponents of the change argued that it would benefit rural and community banks, which primarily lend to main street businesses (it also benefitted larger banks). A handful of vulnerable Senate Democrats who backed the bill ended up losing their reelection bids later that year anyway.
Warner, a wealthy former venture capitalist and senior member of the Senate Banking Committee, suggested that a mix of mismanagement, high interest rates, and an “unprecedented” run on deposits contributed to Silicon Valley Bank’s downfall.
Other prominent banking experts, including Federal Reserve Board Chair Jerome Powell, supported the legislation, arguing regulators like the Fed had made the financial system much safer than it was in 2008. But critics of the legislation were not hard to find.
“Without any compelling public policy rationale — other than the deceptive guise of aiding regional and community banks — this bill now seeks to undo key bulwarks of public protection designed to avert future crises,” wrote Phil Angelides, the chair of the Financial Crisis Inquiry Commission, which produced an authoritative report on the causes of the 2008 financial crisis.
Biden’s administration on Sunday announced emergency steps to prevent more instability in the banking sector. The Treasury Department, Federal Reserve and FDIC said that all Silicon Valley Bank clients will be protected and able to recover their money, even though federal deposit insurance is only supposed to cover a depositor’s first $250,000. The vast majority of Silicon Valley Bank’s deposits were over the threshold, meaning they were uninsured and are now getting bailed out.
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