New York (CNN) Senator Elizabeth Warren is stepping up pressure on the Federal Reserve following the collapse of Silicon Valley Bank.
In a new letter shared exclusively to CNN, Warren, Senator Bernie Sanders and ten other senators are calling on the Fed to crack down on major regional banks with assets between $100 billion and $250 billion.
Both Silicon Valley Bank and Signature Bank fit that asset threshold when they failed earlier this month. Dodd-Frank’s bipartisan rollback in 2018 freed major regional banks in that range of assets from the harshest oversight.
“The fall of both SVB and Signature, the near-crash of First Republic and the struggles of other regional banks shed new light on the systemic importance of banks with assets between $100 billion and $250 billion,” the lawmakers wrote in a statement. letter. sent Wednesday to Michael Barr, the vice chairman of oversight at the Fed.
The dozens of lawmakers note that the same Dodd-Frank rollback in 2018 gives the Fed leeway in applying stricter regulation to banks in this category – including stronger capital, liquidity, stress test and resolution plans.
Notably, the letter was signed by Senator Angus King, the Maine Independent who voted for the 2018 rollback. It was also signed by Sanders and Democratic Senators Jack Reed, Tammy Duckworth, Richard Blumenthal, Mazie Hirono, Ed Markey, Sheldon Whitehouse, Tina Smith, Chris Van Hollen and Brian Schatz.
“The irresponsible and excessive risk-taking by SVB and Signature executives should be a clear reminder that banks cannot be left to fend for themselves,” Warren and the other Senate Democrats wrote. “The Fed has a responsibility to safeguard financial stability, and to fulfill that responsibility it must ensure that all banks with potential systemic importance are subject to strict safety and soundness rules.”
Lawmakers argue that the federal intervention in the wake of the SVB and Signature failures underscores the systemic risk posed by problems at banks of this size.
Treasury Secretary Janet Yellen said Tuesday that US officials have taken “decisive and strong action” to calm the banking crisis following the bank failures.
What will the Fed do?
Days after the bank failures, the Federal Reserve launched a review of the regulation and supervision of Silicon Valley Bank. That assessment is led by Barr, who has been nominated by President Joe Biden as the Fed’s chief Wall Street supervisor.
Fed Chairman Jerome Powell, a frequent target of Warren’s criticism, called for a “thorough, transparent and speedy review” by the Fed.
The Fed is reconsidering some of its own rules regarding medium-sized banks, including potentially ramping up capital and liquidity requirements and ramping up annual “stress tests,” the Wall Street Journal previously reported.
“We strongly support this approach,” Warren and her colleagues wrote in the letter. “To restore adequate safety practices in the banking system and restore consumer confidence in the soundness of their banks, the Fed must immediately exercise its authority to apply enhanced prudential standards and oversight to banks with $100-$250 billion in assets.”
Warren has long been a regulatory hawk, pushing for tough rules to prevent a repeat of the 2008 crisis and sharply criticizing those who have relaxed rules on banks.
‘serious error’
However, the role of Dodd-Frank’s rollback in 2018 in the bankruptcy of Silicon Valley Bank is hotly debated
Mark Zandi, chief economist at Moody’s Analytics, recently told CNN’s Kate Bolduan that he doesn’t know if relaxing stress testing requirements “would have prevented the bank failures,” adding that these stress tests “couldn’t have done any harm.”
Sheila Bair, a Republican and the former chair of the FDIC during the 2008 crisis, told CNN’s Poppy Harlow that she doesn’t think there is “a general problem because of deregulation with regional banks.”
Patricia McCoy, a former federal regulator, told CNN on Tuesday that the events of the past 10 days have shown that the Dodd-Frank rollback in 2018 for banks in the $100 billion to $250 billion asset class was a “serious mistake” .
“Fast forward five years, and two of those banks — Silicon Valley and Signature Bank — went bankrupt due to lack of liquidity and potential undercapitalization,” McCoy, now a professor at Boston College Law School, said in an email. “Their failures destabilized the financial system in the process and caused federal banking regulators to take measures (such as insuring all deposits at the two failed banks) that will entice banks to bet on even greater risks going forward.”
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