Democrats on Capitol Hill are defending their vote for the 2018 bank deregulation bill that President Biden and other party members blame for last week’s stunning collapse of Silicon Valley Bank and Signature Bank.
Forty-nine Democrats — 33 in the House and 16 in the Senate — plus Sen. Angus King (I-Maine), who caucuses with the Democrats, joined with Republicans in 2018 to pass the deregulation bill.
Nineteen are still in the House, all of whom will have to face voters next year, and 12 are in the Senate, five of whom are up for re-election in 2024. Sen. Kyrsten Sinema (I-Ariz.), who was in the House as a Democrat in 2018 and voted for the deregulation bill, he is also up for re-election next year.
Supporters of the bill, which former President Trump signed into law, saw it as a way to provide relief to small and medium-sized banks that have struggled with rigorous regulations enacted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. year, which was passed after the 2008 financial crisis.
But a number of Democrats are now blaming that rollback for the failure of Silicon Valley Bank and Signature Bank — which were exempt from the 2018 regulations — putting Democratic supporters on the defensive as the bank blame game heats up on Capitol Hill.
Asked if she regretted voting for the bill, Sen. Debbie Stabenow (Mich.), a member of the Democratic leadership who is retiring next year, told The Hill, “Not at all.”
“It was very important to me that we give our small banks, community banks and credit unions, which did not cause the financial crisis in 2008, some flexibility,” she said.
Rep. Josh Gottheimer (DN.J.) also said he doesn’t regret his repeal vote, calling the Dodd-Frank regulations “impossible” for small, medium and regional banks.
“You had a set of rules that literally applied to several of the largest institutions in the country, as well as our small and medium and regional banks. That was impossible, and they were all actually being merged and sold to larger banks and there were no more community banks in this country,” he said in an interview with CNN on Tuesday.
The 2018 law — formally known as the Economic Growth, Regulatory Relief and Consumer Protection Act — exempted some banks from stricter Federal Reserve oversight and stress tests mandated by the Dodd-Frank Act by raising the asset threshold for those regulations from $50 billion to $250 billions of dollars. .
Silicon Valley Bank and Signature Bank were in that range.
“Let’s be clear. The failure of a Silicon Valley bank is a direct result of Donald Trump’s absurd 2018 bank deregulation bill that I strongly opposed,” Sen. Bernie Sanders (I-Vt.) wrote in a statement.
Sen. Elizabeth Warren (D-Mass.), who voted against the 2018 bill and is now leading efforts to overturn the bill, said Silicon Valley Bank (SVB) and Signature Bank “would be subject to stronger liquidity and capital requirements to withstand financial shocks” if Congress and the Federal Reserve did not end tighter oversight.
“They would be required to conduct regular stress tests to reveal their vulnerabilities and strengthen their operations,” she wrote in a New York Times article. “But since those requirements were lifted, when the old-fashioned bank hit SVB, the bank couldn’t withstand the pressure — and Signature’s collapse was close.
Silicon Valley Bank, a California-based institution that mainly catered to startups, was taken over by federal regulators last Friday after a massive crackdown on the bank over liquidity problems. Days later, state regulators seized Signature Bank, a New York establishment that dealt mostly with real estate companies and law firms, after another rush by customers to withdraw deposits.
The collapse of Signature Valley Bank is now the second largest bank failure in American history, and the Signature Bank collapse is the third largest.
Sen. Tim Kaine (D-Va.), who was behind his vote for the 2018 deregulation bill, told The Hill that Old Dominion lost some of its banks between 2010 and 2018 as small banks faced with the need to hire compliance departments, decided to sell to larger institutions, which led to branch closures and layoffs.
“My community banks, as you have entered the implementation for several years, have in a way raised this question. They said, hey, look, a law designed to stop too-big-to-fail is also accelerating too-small-to-fail,” said Kaine, who is up for re-election in 2024.
“Common banks, when  the bank account is drawn up, they’re like, we strongly support this. They had strong support and still do, and they’ve done well in Virginia over the last few years,” he added.
Sen. Gary Peters (D-Mich.) also said he doesn’t regret his 2018 vote to support the deregulation bill and cautioned against jumping to conclusions about what caused the collapse.
“I don’t know all the facts,” Peters said. “We currently have an ongoing investigation; The feds are going to look into exactly what happened. I don’t think we should jump to conclusions, so we’re actually investigating and looking at the facts.”
The Justice Department and the Securities and Exchange Commission are investigating the collapse of a Silicon Valley bank, and the Federal Reserve has launched its own investigation. The central bank said a review of the investigation, led by vice-chairman for supervision Michael Barr, would be made public on May 1.
Sen. Chris Coons (D-Del.), who voted for the 2018 bill, said it was “premature” to link the five-year-old law to last week’s collapse.
“I think it’s premature to say that we know that this action by regulators under the previous administration — or this action legislatively under the previous administration — made a difference,” he told The Hill. “We don’t know that.”
The senator cited other factors that may have led to the bank’s collapse, including management failure, failure to plan for inflation risk and failure of regulatory oversight.
Warren and Rep. Katie Porter (D-Calif.), however, draw a direct line between the failing banks and the 2018 law. The progressive pair, along with dozens of other Democrats, introduced legislation on Tuesday that would repeal Dodd-Frank by restoring the regulatory threshold to $50 billion from 2018.
The legislation comes after Biden this week called on Congress and banking regulators “to strengthen rules for banks to make these types of failures less likely to happen again and to protect American jobs and small businesses.”
Stabenow said she was concerned about the threshold under the Warren-Porter Act.
“My reason for supporting the bill originally was because I thought the $50 billion threshold was too low. And so she moves it all the way to that. And that’s my question,” she said.
“And I think we need to look at, you know, what really happened here? I mean, it’s the complete incompetence of this bank, for sure. And the question is what would make the difference? That’s what I’m interested in,” she added, later saying “I think it’s just looking at, you know, what we can do to address this situation without going back to hurting the small banks.”
Coons said it was “premature” to consider “specific solutions” when the cause of the bank’s failure remains unknown, and Kaine said he wanted to review Barr’s analysis first before making a decision on Warren’s bill.
But if Barr says repealing the override would be good, Kaine said he “would be in favor.”
One proponent of Warren’s bill could be Rep. Andre Carson (D-Ind.), who supported the 2018 repeal. Asked about his vote, the congressman told The Hill that, in light of the bank shutdowns, it’s time to move standards back in the direction of Dodd-Frank.
“In light of recent events, I believe it is time to review and update those changes to bring the requirements closer to our original Dodd-Frank standards, which I proudly voted to establish,” he told The Hill. “This will help strengthen our financial system to be resilient and reliable as economic ebbs and flows flow.”