After Silicon Valley Bank collapsed late last week following a run on the bank, Sen. Bernie Sanders of Vermont argued that the culprit was clear: an “absurd” 2018 law, signed by then-President Donald Trump, that rolled back regulations on banks of SVB’s size.
President Joe Biden wasn’t as direct as Sanders in blaming the 2018 rollback for SVB’s implosion, but he, too, criticized the Trump law in his Monday comments on the banking system. Trump, meanwhile, rejected any role in the SVB mess and his spokesperson has accused Democrats of trying to deceive the public to evade their own responsibility.
Here’s a look at how the 2018 rollback affected banks like SVB, who supported that law in Congress, and what some analysts have to say about the extent to which the law might have contributed to the SVB situation.
In short, the 2018 rollback freed some banks from policies put in place in the wake of the financial crisis of 2007 and 2008 to try to stop these banks and the financial system from crumbling.
A 2010 law signed by then-President Barack Obama, widely known as Dodd-Frank, had created stricter regulations for banks with at least $50 billion in assets. These banks, which were deemed “systemically important” to the financial system, were required to undergo an annual Federal Reserve “stress test,” to maintain certain levels of capital (to be able to absorb losses) and liquidity (to be able to quickly meet cash obligations), and to file a “living will” plan for their quick and orderly dissolution if they were to fail.
The 2018 rollback got rid of the $50 billion threshold, which many banks had argued was needlessly encumbering them. Instead, among many other changes, the rollback law made the enhanced regulations standard only for banks with at least $250 billion in assets – only about a dozen banks at the time.
The…
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