#93: You Can't Regulate Stupidity & Silicon Valley & Signature Banks were STUPID!
Download MP3Link to Whitehouse "fact" sheet:
https://www.whitehouse.gov/briefing-room/statements-releases/2023/03/30/fact-sheet-president-biden-urges-regulators-to-reverse-trump-administration-weakening-of-common-sense-safeguards-and-supervision-for-large-regional-banks/
President Biden believes that resilient community and regional banks provide vital services to small businesses, workers, and families around the country. The Biden-Harris Administration has taken decisive action to ensure the stability of the banking system without putting taxpayer dollars at risk. As we have demonstrated, the administration has the tools to act quickly to prevent contagion and is committed to taking strong action if needed. Americans should have confidence that their deposits will be there when they need them.
As the President said when his administration announced actions to stabilize the banking system, he is committed to “continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again.” The Obama-Biden Administration put in place strong requirements – primarily through the Dodd-Frank Act and subsequent regulations and supervision – to reduce the risk of future banking crises. 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 President believes that the weakening of common-sense bank safeguards and supervision during the Trump Administration for large regional banks should be reversed in order to strengthen the banking system and protect American jobs and small businesses.
Specifically, the President urges the federal banking agencies, in consultation with the Treasury Department, to consider a set of reforms that will reduce the risk of future banking crises, including:
- Reinstating rules that were rolled back in the previous Administration for banks with assets between $100 and $250 billion, including:
- Liquidity requirements and enhanced liquidity stress testing. Liquidity rules originally created under the Dodd-Frank Act required banks with between $100 and $250 billion in assets to hold sufficient high-quality liquid assets to cover expected net outflows during a stress period. The Trump Administration eliminated these rules for banks below $250 billion in assets. A recent analysis found that, as of the end of 2022, Silicon Valley Bank was 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. 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.
- Annual supervisory capital stress tests. Federal banking authorities have undertaken comprehensive capital stress tests to evaluate a range of risks that could face banks and to require that banks clearly have enough capital to withstand the potential losses associated with those risks. Under the Trump Administration, regulators reduced the obligation for banks like Silicon Valley Bank to undergo these stress tests from once a year to once every two years. As a result, when Silicon Valley Bank failed, it had never undergone a comprehensive capital stress test even though it had more than $200 billion in assets. Concerns about the bank’s capital levels contributed to a loss of confidence and withdrawal of deposits.
