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Biden calls to revive bank regulations that Trump weakened

March 31, 2023

Weeks after the failure of two banks, President Joe Biden called Thursday for independent regulatory agencies to impose tighter rules on the financial system, telling them that they can act under current law without additional steps taken by Congress.

The recommended changes outlined by the White House try to put a clear blame on the Trump administration for weakening supervision of regional banks, issuing a fact sheet that said Biden’s predecessor “weakened many important common-sense requirements and supervision.”

“The president is urging the banking regulators to consider reforms that will reduce the risk of future banking crises,” White House press secretary Karine Jean-Pierre told reporters.

Rattling the financial markets and U.S. voters alike, the California-based Silicon Valley Bank and New York-based Signature Bank failed over the course of a weekend and required government intervention. Then another financial institution, First Republic Bank, received an emergency $30 billion infusion of funds from 11 large private banks.

Biden wants to revive and expand rules for mid-size banks that face less scrutiny than the industry’s behemoths, with administration officials saying that U.S. banks have stabilized since the collapse of Silicon Valley Bank on March 10 as it rolls out its recommended changes.

Once banks hold assets of more than $100 billion, the administration is asking them to hold more capital to absorb losses and face enhanced stress testing to ensure they could withstand a possible crisis. They would also need to provide the government with “living wills” to help them be unwound in case of failure.

In addition, Biden wants regulators to provide more aggressive supervision of banks and have them ensure that community banks are not responsible for replenishing the federal insurance fund for bank deposits.

Greg Baer, CEO of the Bank Policy Institute, criticized the administration’s proposals, saying it would impose costs on the economy as the bank failures are still being reviewed.

“This has a strong feeling of ready, fire, aim,” said Baer, whose advocacy group represents the financial sector.

Rob Nichols, president and CEO of the American Bankers Association, called the move “premature.”

The Biden administration’s public push is part of a larger effort by the Biden to ensure that individual bank failures can be contained without triggering a chain reaction across the wider financial system.

Treasury Secretary Janet Yellen said in a Thursday speech that regulations have been weakened in recent years as the shocks of the 2008 financial crisis wore off, but that the recent failures required swift government intervention in order to preserve public confidence.

“The failures of two regional banks this month demonstrate that our business is unfinished,” Yellen said at the National Association for Business Economics conference in Washington. “Regulation imposes costs on firms, just like fire codes do for property owners. But the costs of proper regulation pale in comparison to the tragic costs of financial crises.”

What seemed unique in the two recent bank failures was how quickly bank runs started in a digital era, putting at risk accounts that exceeded the $250,000 limit on deposit insurance. The banks’ holdings were also hurt by the Federal Reserve raising interest rates in order to tame inflation.

Yellen is focused not just on banks, but also rules for money market funds, hedge funds and cryptocurrency.

“If there is any place where the vulnerabilities of the system to runs and fire sales have been clear-cut, it is money market funds,” she said. In February, money market funds contained net assets worth $5.3 trillion, according to the Securities and Exchange Commission.

Orange County Register

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Biden calls to revive bank regulations that Trump weakened

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