Democrats defend deregulation vote amid banking blame game

Capitol Hill Democrats are defending their vote for a 2018 banking deregulation bill that President Biden and other party members blame for last week’s stunning collapse of Silicon Valley Bank and Signature Bank.

Forty-nine Democrats — 33 in the House and 16 in the Senate — plus Sen. Angus King (I-Maine), who caucus with Democrats, joined Republicans in 2018 in passing the deregulation bill.

Nineteen of them are still in the House, all of whom will face voters next year, and 12 are in the Senate, five of whom are up for re-election in 2024. Sen. Kyrsten Sinema (I-Arizona), who was in the House as a Democrat in 2018 and voted for the deregulation bill, is also eligible for re-election next year.

Supporters of the legislation, which former President Trump signed into law, saw it as a way to relieve small and medium-sized banks that were struggling with tough regulations put in place under the Dodd-Frank Reform Act of 2010. of Wall Street and Consumer Protection, which was enacted after the 2008 financial crisis.

But a number of Democrats are now blaming that rollback for the failure of Silicon Valley Bank and Signature Bank – which were exempted from regulation in 2018 – putting Democratic supporters of the measure on the defensive as the Banking blame game escalates on Capitol Hill.

When asked if she regretted her vote for the bill, Sen. Debbie Stabenow (Mich.), a Democratic leadership member who is retiring next year, told The Hill: “Not at all. “.

“It was very important to me to make sure our smaller banks, community banks and credit unions, which didn’t cause the 2008 financial crisis, had some flexibility,” she said.

Rep. Josh Gottheimer (DN.J.) also said he doesn’t regret his rollback vote, calling the Dodd-Frank regulations “impossible” for small, medium and regional banks.

“You had a set of rules that literally applied to the few largest institutions in the country as well as our small and medium regional banks. It was impossible, and they were all merging and selling out to the biggest banks and there were no community banks left in this country,” he said in an interview with CNN on Tuesday.

The 2018 bill – officially known as the Economic Growth, Regulatory Relief and Consumer Protection Act – exempted some banks from tighter Federal Reserve oversight and stress testing. mandated by the Dodd-Frank Act by increasing the asset threshold for these regulations from $50 billion to $250 billion. .

Silicon Valley Bank and Signature Bank were both in this range.

” Let’s be clear. The failure of Silicon Valley Bank is the direct result of an absurd 2018 banking deregulation bill signed by Donald Trump that I strongly opposed,” Sen. Bernie Sanders (I-Vt.) wrote in a statement.

Sen. Elizabeth Warren (D-Mass.), who voted against the 2018 bill and is now leading an effort to overturn the legislation, said Silicon Valley Bank (SVB) and Signature Bank “would have been subject to stronger liquidity and capital requirements to withstand financial shocks” if Congress and the Federal Reserve had not rolled back tighter oversight.

“They would have been required to conduct regular stress tests to expose their vulnerabilities and shore up their businesses,” she wrote in an op-ed in The New York Times. “But because those requirements were repealed, when an old-fashioned bank run hit SVB‌, the bank‌ couldn’t resist the pressure – and Signature’s collapse was close behind.

Silicon Valley Bank, a California-based institution that primarily catered to startups, was taken over by federal regulators last Friday after a massive run on the bank amid liquidity problems. Days later, state regulators seized Signature Bank, a New York-based institution that largely did business with real estate companies and law firms, following another rush of customers to withdraw their deposits.

The Signature Valley Bank collapse is now the second largest bank failure in American history, and the Signature Bank failure is the third largest.

Sen. Tim Kaine (D-Va.), who supported his vote for the 2018 deregulation bill, told The Hill that the Old Dominion lost some of its banks between 2010 and 2018 because the Small banks, faced with having to hire compliance departments, decided to sell to larger institutions, which resulted in the closure of branches and the layoff of employees.

“My community banks, over the years of implementation, have sort of posed this problem. They said, listen, a law that was designed to stop too big to fail is also accelerating too small to succeed,” said Kaine, who is re-elected in 2024.

“Community banks, when the Banking Bill (2018) was drawn up, they said to themselves, we strongly support this. They were very supportive and they still are, and they’ve done well in Virginia for the past few years,” he added.

Sen. Gary Peters (D-Mich.) also said he doesn’t regret his 2018 vote in favor of the deregulation bill and cautioned against jumping to conclusions about the cause of the collapses.

“I don’t know all the facts,” Peters said. “Right now we have an ongoing investigation; the feds are going to look at exactly what happened. I don’t think we should jump to conclusions, so we investigate and look at the facts. »

The Department of Justice and the Securities and Exchange Commission are both investigating the Silicon Valley Bank collapse, and the Federal Reserve has launched its own investigation. The central bank said a review of the investigation, which is being led by Vice President for Oversight Michael Barr, will be made public on May 1.

Sen. Chris Coons (D-Del.), who voted for the 2018 bill, said it was “premature” to link the five-year-old bill to last week’s collapse.

“I think it’s premature to say that we know that action by regulators under the previous administration — or that legislative action under the previous administration — made a difference,” he told The Hill. “We do not know it.”

The senator cited other factors that could have led to the bank’s collapse, including failure of management, failure to plan for inflation risk and failure of regulatory oversight.

Warren and Rep. Katie Porter (D-California), however, draw a direct line between failing banks and the 2018 bill. The progressive couple, along with dozens of other Democrats, introduced a bill Tuesday which would repeal the 2018 Dodd-Frank rollback by restoring the regulatory threshold to $50 billion.

The legislation comes after Biden this week called on Congress and banking regulators “to strengthen rules for banks to reduce the risk of this type of bank failure happening again and to protect American jobs and small businesses.”

Stabenow said she was concerned about the threshold under the Warren-Porter bill.

“The reason I supported the bill originally was that I thought the $50 billion threshold was too low. And so it brings it all down to that. And so that’s my question,” she said.

“And I think we have to look at, you know, what really happened here? I mean, there is total incompetence from this bank, definitely. And the question is what would make a difference? That’s what interests me,” she added, later saying “I think it’s just about seeing, you know, what we can do to fix this without going back to harm small banks”.

Coons said it was “premature” to consider “specific solutions” while the cause of the bank failure remains unknown, and Kaine said he wanted to review Barr’s analysis first before taking a decision on Warren’s bill.

But if Barr says repealing the rollback would be a good thing to do, Kaine said he would be “supportive.”

One of Warren’s bill supporters may be Rep. André Carson (D-Ind.), who backed the 2018 rollback. Asked about his vote, the congressman told The Hill in a statement that , in light of the bank closings, it’s time to bring the standards back in the direction of Dodd-Frank.

“In light of recent events, I believe it is time to review and update these changes to bring the requirements closer to our original Dodd-Frank standards, which I was proud to vote to establish” , he told The Hill. “This will help strengthen our financial system to remain resilient and reliable as the economic tides come and go.”