North Jersey lawmakers are looking to ensure the banking crisis does not spread past the collapses of Silicon Valley Bank (SVB) and Signature Bank.
Sens. Bob Menendez and Cory Booker are among the politicians in both houses that are looking to reinstate provisions of the Dodd-Frank Act repealed in 2018. And Rep. Josh Gottheimer is part of a House coalition that wants to ensure immediate action is taken to protect depositors and prevent runs on banks.
The look for a legislative fix comes as Wall Street endured another down day. The markets government bonds issued by the U.S. and other rich countries were under immense stress on March 15 following a week of worries about the health of global banks. Difficulties in trading are now spreading to many other markets, including those for derivatives that firms and traders use to lock in prices and hedge risks weeks and months ahead of time, such as options, futures and swaps. JPMorgan Chase & Co. analysts recently said that liquidity in the Treasury market has fallen to the lowest levels since March 2020, during the pandemic market crash.
Reaction to SVB
Menendez and Booker introduce the Secure Viable Banking Act, legislation that would repeal Title IV of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018. The North Jersey lawmakers were both outspoken about the dangers of passing the weakening of regulations five years ago, which they saw reducing critical oversight and capital requirements for large banks.
“Five years ago, I stood on the Senate floor to warn my colleagues that only in Washington would anyone think it’s a good idea to mark the ten-year anniversary of the 2008-2009 financial crisis by…a bill that dared big banks to get bigger and increased risk to taxpayers,” said Menendez.
The U.S. Senate Banking, Housing, and Urban Affairs Committee member continued that “after this weekend’s collapse of SVB and Signature, the world saw why it was misguided to pass S.2155, which rolled back critical Dodd-Frank regulations for banks like Silicon Valley Bank, including enhanced prudential standards and stress tests.”
The 2018 legislation raised the asset threshold at which a bank is considered and regulated as a “systemically important financial institution” to $250 billion, exempting SVB and other mid-sized banks from regular stress testing and enhanced liquidity, risk management, and resolution plan requirements. The lawmakers’ new bill would repeal the regulatory rollbacks, which they say invited banks to load up on risk and increase profits, by restoring critical Dodd-Frank protections.
“Congress should have never rolled back regulations put into place to prevent exactly the kind of bank failures we saw play out in recent days,” said Booker. “We must now act to restore these protections to strengthen our banking system, safeguard our economy, and ensure that the hard-earned money of families and small businesses is better protected.”
As for actions sought by Gottheimer, he is looking to address concerns of banks across the country “suddenly unnerved by Silicon Valley Bank’s catastrophic failure.”
Among the actions sought include the FDIC prioritizing finding a buyer for Silicon Valley Bank to provide a seamless transition for the bank’s depositors and borrowers, with the hope of making the depositors whole; the Federal Reserve should offer liquidity through repurchase agreements; provide greater certainty for depositors at other insured depository institutions, Congress and federal regulators should rapidly consider increasing the Federal Deposit Insurance Corporation (FDIC) limit on deposit insurance above the current $250,000 limit and additional oversight measures to ensure that a bank’s asset mix can adequately provide liquidity during a stress event.
“If Americans can’t trust that their basic deposits are safe, we could suddenly face runs at banks of all sizes across the country,’” in a bipartisan letter from House members in which Gottheimer was the lead signatory.
“Additional steps need to be taken to give confidence to depositors and discourage them from fleeing to only the largest banks. Unjustified runs on healthy regional banks would be highly damaging to our economy, threaten our national security, and create enhanced long-term risks.”
Gottheimer, a member of the House Financial Services Committee, said in an interview with CNN that “we can’t go back to a system pre Dodd-Frank with a few banks with all the concentrated dollars in the country and the regional and small sized banks dying. We can’t go to a system that was ‘too big to fail’ to a system where banks are ‘too small to survive’.”
Rather than trying to continue with the romantic notion that local and regional banks are part of America’s heritage and must be preserved, it might worth a 21st century look at banking and consider that we might want more too-big-to-fail megabanks.
There are four megabanks today. All the smaller banks could be consolidated into another four national megabanks that can compete and be fully regulated. More regulation of smaller banks costs them too much and so they won’t be able to compete with the megabanks. So small banks will be doomed by more regulation. But they can survive by morphing into a new megabank (subject to all the too-big-too-fail regulations) that can then compete with the existing ones. Otherwise, the small banks will just be roadkill, leaving the four megabanks unscathed and without competition.
NO BAIL-OUT’S!! When Elected Official’s & the General Public realize that these Corporate Institution’s are a “THREAT” to this the Nation’s Economy & its People’s!! And are also a “THREAT” to other Nation’s & their People!! We People have had “ENOUGH”!! AND; America can’t endure these Abuse’s by Corporate Giant’s & their Strong Hold’s-Over America’s Economy!! Subjugating its Citizen’s to their Corporate’ Greed & Whim’s!! It’s time for’n the American People to take BACK their LOST Freedom’s from these Corporate Mega Monopoly’s; And Open up Competitions & Create well NEEDED & Well PAYING JOB’S!! AND; It’s ‘TIME’ to RAISE Corporate Taxes by a 70%, which will could propel them to begin Braking-“Themselves”-Up on their own creating JOB’S!! Also, (70%) Taxes, will make it difficult to pass this onto their Customer’s!!//