Experts admitted, told ABC News regulators missed “red flags” before the collapse. NO SHIT! RIGHT?
Industry experts are concerned that the deregulatory reforms implemented during former President Donald Trump’s administration have contributed to the downfall of Silicon Valley Bank. Many progressive Democrats, including President Joe Biden, are pointing to the 2018 law that rolled back some of the federal regulations under the Dodd-Frank Act, which was passed after the 2008 financial crisis. Meanwhile, Republicans are blaming the bank’s “woke” practices, as well as government spending and inflation, for its demise. Here is what you need to know about the situation.
The Dodd-Frank Act, passed in 2010, was a response to the Great Recession and involved an overhaul of federal financial regulation. One of the law’s significant provisions was designating banks with over $50 billion in assets as “too big to fail” and thus subject to enhanced prudential standards, such as stress tests and specific capital planning and liquidity requirements.
However, the industry opposed the regulations, claiming they were too burdensome, especially for smaller banks. Silicon Valley Bank’s CEO, Gregory Becker, was among those who called for lighter regulations. After years of political pressure, Congress passed a law that rolled back some of the Dodd-Frank Act’s rules for smaller and mid-tier banks.
Industry experts are now suggesting that regulators may have missed “red flags” that contributed to Silicon Valley Bank’s collapse. The fallout continues, and both sides of the political aisle are pointing fingers and looking for ways to address the situation.
The recent collapse of Silicon Valley Bank is shining a spotlight on the deregulatory reforms implemented during the Trump administration. Critics, including President Joe Biden and progressive Democrats, are pointing to the 2018 law that rolled back some of the regulations under the Dodd-Frank Act passed after the 2008 financial crisis. On the other hand, Republicans are blaming the bank’s “woke” practices and government spending and inflation. Here’s what you need to know about the situation.
The Dodd-Frank Act was overhauled in 2010 to regulate federal financial systems. However, the industry found the regulations burdensome, with Silicon Valley Bank’s CEO, Gregory Becker, among those who called for lighter regulations. Congress ultimately passed a law in 2018 that rolled back some of the Dodd-Frank Act’s rules for smaller and mid-tier banks, including raising the asset threshold for “systemically important” institutions from $50 billion to $250 billion.
Critics such as Democratic Senator Elizabeth Warren and independent Senator Bernie Sanders have blamed the 2018 law for Silicon Valley Bank’s demise. However, former Democratic Representative Barney Frank, who co-authored the Dodd-Frank Act, disagrees, saying that he does not believe the 2018 changes had an impact. Trump defended the law, stating that banks were getting “eaten alive” by regulations. Some Democrats who supported the law are also defending it, saying it was necessary to regulate mid-sized banks appropriately.
Experts suggested that financial safety requirements and stress tests could have caught problems earlier, and the Federal Reserve should have seen the warning signs. Concerns included the bank’s explosive asset growth, its reliance on uninsured deposits, and the impact of high-interest rates on its long-term bonds.
President Biden has cited the Trump-era rollbacks as he addressed the banking system, calling for more regulation. Warren and Representative Katie Porter have unveiled legislation to repeal the 2018 rollbacks. However, Republicans have expressed no interest in revisiting the law.