SVB collapse sparks push for stricter banking rules

Democratic lawmakers, including Senator Elizabeth Warren and Representative Katie Porter, have proposed legislation to repeal a set of Trump-era policies that loosened regulations on small and medium-sized banks. The bill focuses on a provision in the 2018 law that said only banks with over $250 billion in assets are subject to enhanced requirements, up from the previous $50 billion threshold set under the Dodd-Frank Act passed after the Great Recession. The lawmakers proposed the bill after the collapse of three regional banks in less than a week, including California-based Silicon Valley Bank, which had assets above $50 billion but below $250 billion.

However, the bill faces long odds in the GOP-controlled House of Representatives. House Financial Services Chair Patrick McHenry has expressed confidence in the current regulations, while Senate Banking
Committee ranking member Tim Scott has argued that “a culture of government intervention does nothing” to prevent banks from taking excessive risks. Former President Donald Trump’s spokesperson, Steven Cheung, also criticized the Democrats, accusing them of attempting to hide their “failures with desperate lies.”

Greg Becker, who served as CEO of Silicon Valley Bank before its collapse, had lobbied members of Congress to repeal provisions of the Dodd-Frank Act three years before Trump signed the repeal into law in 2018. Becker argued that the restrictions on small banks under the Dodd-Frank Act were too burdensome and inhibited banks’ ability to “provide the banking services our clients need.”

The collapse of Silicon Valley Bank has been linked to the Federal Reserve’s push to stem inflation by hiking interest rates, causing many of the Treasuries and other assets held by SVB to lose value. News of the bank’s losses prompted a massive bank run, spooking investors and shaking Wall Street. SVB’s share
price fell nearly 25% before the bank was shuttered by California state regulators.

The Securities and Exchange Commission and the Department of Justice have reportedly launched investigations into SVB’s collapse, but sources suggest that the investigations will not necessarily result in charges against the bank.

Staff Reporter