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In Wake of Bank Failures, Democrats Introduce Bill to Re-Regulate Banks


On March 14, 2023, Silicon Valley Bank (SVB) — the 16th largest bank in the United States — collapsed, becoming the largest U.S. bank to fail in over a decade. The bank was a favorite of tech investors and had become insolvent due to its focus on the struggling technology startup industry, increasing interest rates, and billions of dollars worth of mortgage-backed securities investments. Meanwhile, Signature Bank, a main lender to the ailing cryptocurrency industry, was shuttered on Sunday after shares fell by nearly 25% on Friday and customers swiftly withdrew their deposits.[0]

In response to the bank failures, President Joe Biden called on Congress and the banking regulators to strengthen the rules for banks, to make it less likely that such a bank failure would happen again.[1]

In response to this call to action, Senator Elizabeth Warren (D-Massachusetts) and Representative Katie Porter (D-California) introduced a bill on March 15, 2023 to repeal part of a Trump-era bank regulation rollback law.[2] This bill would bring the threshold for banks that must undergo extra federal regulations back down to at least $50 billion in assets, instead of the $250 billion limit that was raised in 2018 after lobbying by the banking industry.[2]

Senator Warren also called for Federal Reserve Chair Jerome Powell to recuse himself from the agency’s internal probe of its role in the Silicon Valley Bank collapse, arguing that his actions “directly contributed” to the situation.[3] Warren noted that the 2018 law weakened the 2010 Dodd-Frank law that passed after the 2008 financial crisis, in particular by reducing the number of banks that are subject to stringent stress tests, and reducing liquidity coverage requirements.[4]

Meanwhile, U.S. Rep. Andy Barr of Kentucky has argued that lax government policy, including overspending and long-term low interest rates, not deregulation, was behind the banks’ failures.[5]

Now, Democrats are preparing to introduce legislation that would reverse a GOP-led rollback of Dodd-Frank banking regulations in 2018 that many of them, including President Biden, see as a culprit for the bank failures.[6] In the wake of the Silicon Valley Bank and Signature Bank collapses, there is now a renewed focus on the regulations needed to prevent banking failures, and on how to hold bank executives accountable for mismanagement.

0. “Powell Should Recuse Himself From Fed’s Internal Review Of SVB Oversight, Elizabeth Warren Says” Forbes, 14 Mar. 2023, https://www.forbes.com/sites/saradorn/2023/03/14/powell-should-recuse-himself-from-feds-internal-review-of-svb-oversight-elizabeth-warren-says/

1. “New Financial Regulations Won’t Stop the Next Bank Collapse” Reason, 16 Mar. 2023, https://reason.com/2023/03/17/new-regulations-wont-stop-the-next-bank-collapse

2. “Dems Introduce Bill to Reinstate Dodd-Frank Regulations After Twin Bank Failures” Democracy Now!, 15 Mar. 2023, https://www.democracynow.org/2023/3/15/headlines/dems_introduce_bill_to_reinstate_dodd_frank_regulations_after_twin_bank_failures

3. “Warren Calls on Fed’s Jerome Powell to Recuse Himself From Investigating Silicon Valley Bank Failure” Truthout, 14 Mar. 2023, https://truthout.org/articles/warren-jerome-powell-should-recuse-himself-from-bank-probe-for-role-in-failure

4. “Elizabeth Warren says Republicans handed Fed chairman ‘flamethrower that he aimed at the banking rules’” The Independent, 16 Mar. 2023, https://www.independent.co.uk/news/world/americas/us-politics/elizabeth-warren-federal-reserve-silicon-valley-bank-b2302481.html

5. “The collapse of major US banks leads to bills calling for more regulation” The Conversation, 17 Mar. 2023, https://theconversation.com/the-collapse-of-major-us-banks-leads-to-bills-calling-for-more-regulation-201747

6. “Congress stares down dim prospects for banking reform” Axios, 15 Mar. 2023, https://www.axios.com/2023/03/15/congress-banking-reform-silicon-valley

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