- Some Democrats have been blaming Trump-era regulations for Silicon Valley Bank’s collapse.
- In 2018, Trump signed into law a bill that rolled back provisions in the Dodd-Frank Act and loosened oversight over banks.
- Sen. Bernie Sanders said SVB’s failure is a “direct result” of those rollbacks.
Former President Donald Trump is catching heat for Silicon Valley Bank’s collapse.
The reason goes back to 2018.
On Friday, regulators shut down Silicon Valley Bank following a tumultuous few days of failing to raise capital and a flood of customers withdrawing their funds from the bank. After crypto-friendly Signature Bank shut down on Sunday, as well, the US Treasury, Federal Reserve, and Financial Deposit Insurance Corporation made a controversial move by giving depositors a bailout, vowing to “fully protect” them from any financial losses. Normally, that would only be guaranteed for losses up to $250,000.
Lawmakers on both sides of the aisle criticized the federal agencies’ actions, but some Democrats seized on Trump’s rollback of consumer protections in the Dodd-Frank Act in 2018 as a primary contributor to SVB’s collapse. The rollback lessened scrutiny for banks with under $250 billion in assets, meaning the landmark, post-financial crisis law would only applied to a handful of big banks.
“Greg Becker, the chief executive of Silicon Valley Bank, was one of the many high-powered executives who lobbied Congress to weaken the law,” Massachusetts Sen. Elizabeth Warren wrote in a Monday opinion piece. “In 2018, the big banks won. With support from both parties, President Donald Trump signed a law to roll back critical parts of Dodd-Frank. Regulators, including the Federal Reserve chair Jerome Powell, then made a bad situation worse, letting financial institutions load up on risk.”
Vermont Sen. Bernie Sanders said in a statement that the “failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill signed by Donald Trump that I strongly opposed.”
Notably, Barney Frank, co-author of the Dodd-Frank Act, told Bloomberg on Sunday that if his original bill wasn’t passed, “we’d be seeing a lot more damage these days,” but he doesn’t necessarily blame Trump’s rollbacks for SVB’s fallout.
“I don’t think that had any effect,” Frank said. “I don’t think there was any laxity on the part of regulators in regulating the banks in that category, from $50 billion to $250 billion.”
Still, Democrats aren’t too convinced. Here’s why Trump’s actions are getting the spotlight now that SVB shut down.
What happened to Dodd-Frank in 2018
The Dodd-Frank Act was signed into law in 2010 after the 2008 financial crisis sent shockwaves through the banking system, causing Washington Mutual to collapse in what is now known as the biggest US bank failure. It was designed to protect consumers from abusive financial practices while increasing accountability in the US banking system.
In 2018, the House passed a rollback of regulations in Dodd-Frank by a vote of 258-159, and in the Senate, 17 Democrats joined Republicans to get the bill to Trump’s desk and signed into law. The bill raised the threshold for regulation standards from $50 billion to $250 billion, which left less than ten big banks in the US subject to stricter federal oversight and allowed banks with under $250 billion in assets to escape increased scrutiny.
“This is truly a great day for America and a great day for American workers and small businesses all throughout the nation,” Trump said in 2018. “The legislation I’m signing today rolls back the crippling Dodd-Frank regulations that are crushing community banks and credit unions nationwide, they were in such trouble.”
Paul Ryan, who was speaker of the House at the time of the bill’s passage, said that it was a step toward “freeing our economy from overregulation.” But some Democrats blasted the legislation. Nancy Pelosi said at the time that it was “a bad bill under the guise of helping community banks,” and Warren urged her colleagues to reject the bill, saying before the House vote that “Congress has done enough favors for big banks.”
Still, with SVB’s fallout, some of the Democrats who voted for the Trump-era rollbacks stand by their decision. Sen. Mark Warner of Virginia, for example, told ABC News on Sunday that the law “put in place an appropriate level of regulation on midsized banks.”
“What we’ve got to focus on right now is how do we make sure there’s not contagion, and at the same time, you know, believe that the SVB can be acquired,” Warner said.
It’s unclear what regulators might do next, but Democratic Rep. Katie Porter wants to ensure nothing like this can ever happen again. She wrote in a Sunday email that she’s writing legislation to reverse the 2018 law, saying that “Congress—in a bipartisan vote—caved to Wall Street and loosened our nation’s banking laws. I have no problem standing up to Wall Street, so I’m writing legislation to reverse that risky law.”