New York (CNN) Senator Elizabeth Warren is increasing pressure on the Federal Reserve following the collapse of Silicon Valley Bank.
In a new letter shared exclusively with CNN, Warren, Sen. Bernie Sanders and ten other senators are calling for the Fed to crack down on large regional banks with assets between $100 billion and $250 billion.
both Silicon Valley Bank and Signature Bank meeting that asset threshold when they failed earlier this month. The bipartisan 2018 rollback of Dodd-Frank freed the region’s large banks on a range of assets from the strictest supervision.
“The collapse of both SVB and Signature, the near-crash of First Republic, and the struggles of other regional banks have shed new light on the systemic importance of banks with assets spanning between $100 billion and $250 billion,” the lawmakers wrote in a letter. sent Wednesday to Michael Barr, the vice chair for administration at the Fed.
The dozen lawmakers noticed the same 2018 rollback of Dodd-Frank gives the Fed latitude in applying stricter regulation to banks in this category — including stronger capital, liquidity, stress testing and resolution plans.
Notably, the letter was signed by Senator Angus King, the Maine independent who voted in favor of 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 serve as a stark reminder that banks cannot be left to fend for themselves,” Warren and other Senate Democrats wrote. “The Fed has a responsibility to ensure financial stability, and to fulfill that responsibility, it must ensure that all banks of potential systemic importance are subject to strict safety and soundness rules.”
Lawmakers argue that federal intervention after the SVB and Signature failures underscores the systemic risk posed by troubles at banks of this size.
Treasury Secretary Janet Yellen said Tuesday that US officials have taken “decisive and forceful action” to calm the banking crisis after the bank failure.
What will the Fed do?
Days after the bank failure, the The Federal Reserve launched a review of Silicon Valley Bank regulation and supervision. That review is being led by Barr, who was nominated by President Joe Biden to be the Fed’s top Wall Street regulator.
Fed Chairman Jerome Powell, a frequent target of Warren’s criticism, called for a “thorough, transparent and swift review” of the Fed.
The Fed is rethinking some of its own rules related to medium-sized banks, including potentially increasing capital and liquidity requirements and increasing annual “stress tests,” the Wall Street Journal previously reported.
“We fully support this strategy,” Warren and his colleagues wrote in the letter. “To restore adequate safety practices to the banking system and restore consumer confidence in the soundness of their banks, the Fed must immediately exercise its authority to apply enhanced standards and supervision to those bank with $100-$250 billion in assets.”
Warren has long been a regulation hawk, pushing for tougher rules to avoid a repeat of the 2008 crisis and sharply criticizing lax rules on banks.
‘Serious mistake’
However, the role of the 2018 rollback of Dodd-Frank in the failure 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 easing stress test requirements will “prevent” bank failures, adding that these stress tests “are won’t hurt.”
Sheila Bair, a Republican and former chair of the FDIC during the 2008 crisis, told CNN’s Poppy Harlow that she doesn’t think there are “some broad problems because of deregulation in regional banks.”
Patricia McCoy, a former federal regulator, told CNN on Tuesday that the events of the past ten days showed the 2018 rollback of Dodd-Frank for banks in the $100 billion to $250 billion asset range is a ” serious mistake.”
“Fast forward five years, and two of those banks — Silicon Valley and Signature Bank — failed due to lack of liquidity and possible undercapitalization,” McCoy, now a professor at Boston College Law School, said in an email. “Their failures weakened the financial system in the process and caused federal banking regulators to take steps (such as insuring all deposits at two failed banks) that would tempt banks to bet on greater risks in the future.”
