The failure of Silicon Valley Bank has exposed fresh divisions on Capitol Hill over banking reform, as US lawmakers from both parties trade blame for the lender’s collapse and squabble over future legislation to shore up the financial system.
Progressive Democrats this week heeded a call from President Joe Biden to “strengthen the rules for banks”. Elizabeth Warren, the Massachusetts senator, and Katie Porter, a lawmaker from California, quickly introduced a bill to repeal a 2018 law that had diluted more stringent regulations ushered in after the 2008 financial crisis.
But elsewhere in the party, and across the political aisle, lawmakers have been at odds over how to respond to the fallout. Chuck Schumer, the Senate’s top Democrat, demurred from endorsing the new proposal, simply telling reporters on Wednesday: “We need strong legislation and hopefully we can get something together that’s bipartisan.”
Meanwhile Steve Daines, the Republican senator from Montana, accused the Biden administration of providing “bailouts” that would put lenders and families in his home state “on the hook for the mismanagement of a Bay Area bank”.
“The last thing the federal government should be doing is taking the side of wealthy elites over hardworking families,” he added.
Analysts say such divisions are likely to prove an obstacle in passing any legislation relating to the fallout, particularly since Democrats control the Senate by a narrow majority, and Republicans hold the House of Representatives.
“A crisis is horrible thing to waste, and it’s a catalyst for a lot of further attention and progress on anything tangentially related to the collapse of SVB and the government response,” said Ben Koltun, director of research at Beacon Policy Advisors. But, he added: “It’s hard to see a path forward on any kind of legislation.”
The White House has sought to tie the collapse of SVB to the Trump administration’s dilution of Dodd-Frank — the 2010 law that overhauled the US financial regulatory system — which involved lifting the threshold for banks deemed “too big to fail” from $50bn to $250bn in assets.
Less than a week after SVB’s collapse, several proposals are circulating in Congress, with dozens of Democrats signing on to Warren and Porter’s measure to repeal the Trump-era changes. However many more, like Schumer, have so far refrained from doing so.
Meanwhile, Republican lawmakers have been on the offensive, accusing Democrats of “blame-shifting” and “rushing to institute knee-jerk and excessive regulations”.
“The fact is that President Biden — through all of the spending that he did in the last Congress and the last two years — has driven inflation up to the point where wage earners have to get a 14.8 per cent wage increase just to hold even with this kind of inflation,” Mike Crapo, the Republican senator from Idaho who spearheaded the 2018 reforms, told Fox Business on Tuesday.
The weekend US officials hatched a plan to stave off a banking crisis
Kevin McCarthy, the Republican Speaker of the House, has also tried to tie the banks’ failure to the administration’s fiscal policies, saying in a tweet on Tuesday: “Biden’s reckless spending caused record inflation and rapid interest rate hikes that broke family budgets and banks too. We must restore fiscal sanity.”
Meanwhile, Kevin Cramer, the Republican senator from North Dakota who, like Crapo, sits on the powerful Senate banking committee, urged caution.
“This situation demands oversight to uncover the cause of recent events and the bureaucracy’s reaction to it,” Cramer said. “Instead of rushing to institute knee-jerk and excessive regulations, a level assessment of these developments is needed.”
Other Republicans have invoked the culture wars in their response, claiming SVB’s commitments to diversity, equity and inclusion, and environmental, social and governance considerations, had undermined its ability to stay solvent.
“So these SVB guys spend all their time funding woke garbage (‘climate change solutions’) rather than actual banking and now want a handout from taxpayers to save them,” tweeted Josh Hawley, the Republican senator from Missouri earlier this week.
Hawley has since introduced his own bill with Mike Braun, the Republican senator from Indiana, that would bar banks from passing on to customers any costs associated with “special assessment” fees levied by the Federal Deposit Insurance Corporation.
Heidi Heitkamp, the former Democratic senator from North Dakota, who co-sponsored the 2018 rollback of Dodd-Frank with Crapo, expressed exasperation at both progressive members of her own party who were calling for a swift reversal of the changes, and those on the right looking to score political points.
“This is the problem in Washington. Before people have the facts, before people have done the analysis, they go right to their political ideology and say, see, this is what caused it,” she said. “Everybody wants to solve a problem before they understand what the problem is.”