The Biden White House is calling on federal banking regulators to institute a number of changes intended to provide more oversight on large regional banks and reduce the risk of a future banking crisis.
The administration announced its regulatory push on Thursday in response to the recent collapse of two large regional banks, Silicon Valley Bank and Signature Bank, and subsequent market concerns about the potential for contagion throughout the industry. Many of the president’s proposed safeguards – which include restoring regulations rolled back during the Trump administration – have been discussed by regulators themselves, and while the administration can recommend these changes be instituted, they cannot force these regulators to take action.
A White House official repeatedly blamed regulatory rollbacks during the Trump administration for contributing to the recent banking industry woes, adding in a call with reporters on Thursday that President Joe Biden “believes that the weakening of common-sense bank safeguards and supervision during the Trump administration for large regional banks should be reversed in order to strengthen the banking system and protect American jobs and small businesses.”
“The Obama-Biden administration put in place strong requirements – primarily through the Dodd-Frank Act and subsequent regulations and supervision – to reduce the risk of future banking crises. Unfortunately, the Trump administration and its regulators weakened many important common-sense requirements and (weakened) supervision for large regional banks like Silicon Valley Bank and Signature Bank, whose recent failure led to the risk of contagion throughout the banking system,” the official said. “Independent experts have said that these rollbacks during the previous administration were a contributor to recent bank failures.”
The president, in recommendations laid out in a White House fact sheet, is urging federal banking regulators to re-institute rules rolled back in the previous administration for banks with assets between $100 billion and $250 billion. This includes “liquidity requirements and enhanced liquidity stress testing” originally created under the Dodd-Frank Act in 2010, annual supervisory capital stress test requirements, mandating comprehensive resolution plans and “strong capital requirements for banks, at an appropriate time after a considerable transition period.”
The president wants to “reduce the transition periods for applying common-sense safeguards to growing banks that are projected to exceed the $100 billion threshold” and “strengthen supervisory tools, including stress testing, to make sure banks can withstand high interest rates and other stresses,” according to the fact sheet.
Additionally, the president wants to expand long-term debt requirements for a broader range of banks and ensure that community banks will not have to pay the costs of replenishing the Deposit Insurance Fund after the recent bank failures.
The official repeatedly asserted that the reinstatement of these rules was under the purview of agencies and will not require congressional action, signaling that banking regulators can move quickly to stand the rules up again. They also said the reinstatement of the rules, made in consultation with the Treasury Department, had no timeline.
The official said the White House believes the banking industry has stabilized “significantly” since this month’s banking collapse, adding that the president’s recommendations are “about making sure that we are protecting the stability and resilience of the banking going forward.”
“The president said it was important to make sure that we don’t end up back in this situation again, whether that’s months or years from now,” the official added.
The Bank Policy Institute, a nonpartisan policy group that represents leading American banks and their customers, expressed disappointment in the Biden administration’s regulatory push on large regional banks.
“It would be unfortunate if the response to bad management and delinquent supervision at SVB were additional regulation on all banks that would impose meaningful costs on the U.S. economy going forward,” BPI President and CEO Greg Baer said in a statement on Thursday. “The Fed has barely begun its promised review. This has a strong feeling of ready, fire, aim.”
Better Markets, a nonpartisan organization founded in the wake of the 2008 financial crisis that often fights for tougher banking regulations, applauded the Biden administration’s new efforts.
“Yes, the bankers, their lobbyists, and allies are going to scream and make all sorts of baseless claims about how the sky will fall if they are properly regulated, as they always do and have been doing since the Great Crash of 1929. Their claims are false and dangerous and must be rejected,” Dennis M. Kelleher, the nonprofit’s co-founder, president and CEO said in a statement. “We look forward to prompt action by the agencies following up on today’s important words and directives from the White House.”