The collapse of Silicon Valley Bank, the second-largest bank failure in U.S. history, came just years after a Republican-led bill rolled back bank regulations imposed after the 2008 financial crisis — raising criticism of the role Republicans played in weakening the Dodd-Frank regulation, which could have prevented the tumbledown, according to a new report released by the left-leaning government watchdog group Accountable.US.
Former President Donald Trump in 2018 signed into law the Economic Growth, Regulatory Relief, and Consumer Protection Act, which severely watered down risk-assessment rules put in place in the wake of the 2008 financial crisis to try to stop banks from crumbling.
Dodd-Frank, a 2010 law signed by former President Barack Obama, created stricter regulations for banks with at least $50 billion in assets. These banks were required to undergo an annual Federal Reserve "stress test," which assesses whether banks were capable of absorbing losses during stressful conditions while still meeting obligations to creditors and counterparties and continuing to be able to lend to households and businesses.
But Trump's regulatory rollback raised the threshold for enhanced regulatory standards from $50 billion to $250 billion, exempting 25 of the 38 largest banks in the country from stronger capital and liquidity rules, enhanced risk management standards, living-will requirements and some stress testing requirements, according to the Center for American Progress.
SVB might have managed its interest rate risks better had parts of the Dodd-Frank financial-regulatory package not been rolled back under Trump, some banking experts told the New York Times. But even during the passage of Dodd-Frank, Republicans "fought tooth and nail to try to block any kind of Wall Street reform even in the aftermath of the biggest financial crisis in a generation," said Jeremy Funk, a spokesperson for Accountable.US.
"The reason why is because the Republicans largely take tens and millions of dollars from Wall Street interests, big banks,[the] financial industry generally, and they don't want any kind of oversight whatsoever," Funk said.
Leading up to the passage of the rollback, the banking industry aggressively lobbied to water down Dodd-Frank. SVB CEO and President Greg Becker "personally led" the bank's $500,000 lobbying efforts to reduce financial regulations on capital requirements and stress tests, according to the Accountable.US report.
Congressional Republicans, who pushed to pass the bill, even received payments from SVB's Political Action Committee.
House Financial Services Chair Patrick McHenry, who called the bill "a win for consumers" and "an important first step to undo Dodd Frank," received at least $10,000 from SVB's PAC from 2015 to 2022.
Upon the bill's passage, McHenry said Dodd-Frank created "onerous regulatory burden[s]" on regional banks "that were not part of the financial crisis and did not need the new level of regulation."
His efforts to push back against common sense regulation within the Dodd-Frank bill are still ongoing, noted Liz Zelnick, director of economic security and corporate power at Accountable.US.
McHenry has pushed back against "any kind of federal oversight of the financial system," she added, referring to his efforts to defund the Consumer Financial Protection Bureau and railing against capital requirements.
During a March 2023 House Financial Services hearing with Federal Reserve Chair Jerome Powell, several Republicans, including McHenry, Rep. Frank Lucas, R-Okla., and Rep. Roger Williams, R-Texas, suggested that increased Fed oversight would "increase borrowing costs," citing concerns that Fed Vice Chair for Supervision Michael Barr was unfairly looking at capital requirement tests.
"These are the very things that if SVB and Signature Bank had in place could have prevented this kind of meltdown," Zelnick said.
Other lawmakers like Rep. Blaine Luetkemeyer, R-Mo., and Sen. Tim Scott, R-S.C., who worked to pass the bill, also received donations from SVB's PAC.
In May 2018, Luetkemeyer said the legislation would "provide relief to community financial institutions and American borrowers." He collected $3,000 in donations from SVB's PAC.
Scott, who is the ranking member of the Senate Committee on Banking, Housing, and Urban Affairs and an original cosponsor of the bill, received $3,700 from SVB's PAC.
"Despite what's just happened, the dust is still settling here, [Republicans] want to go further," Funk said. "They want to continue to defang and get rid of Dodd-Frank… and let the financial industry write their own rules with no oversight. It is scary that even amid a crisis right now, they are completely undeterred and want to keep pushing for more deregulation. And again, that is because they're so deep in the pocket of the financial industry, they don't care what the consequences are for consumers and the economy at large."
In the lead-up to the collapses of SVB and Signature Bank, Republican lawmakers continued railing against capital requirements and the Dodd-Frank regulatory framework enforced on banks, the Accountable.US report pointed out.
Republican senators led by Scott sent a letter to the Federal Reserve urging it to be mindful in reviewing bank capital requirements that could "have a chilling effect" on the banking sector.
Following SVB's collapse, Republicans doubled down on their views that their regulation bill was still appropriate.
McHenry blamed Twitter for "fuel[ing]" Silicon Valley's bank run.
"At this time, it is important to remain levelheaded and look at the facts—not speculation—when assessing the right path forward," he said.
Sen. Kevin Cramer, who signed onto the Senate letter to the Fed, also defended the rollback, saying that he doesn't think "smaller banks need more oversight and regulation."
Rep. Ann Wagner, R-Mo., said "'this is not a systemic issue and I have confidence in our banking and financial system,'" telling The Kansas City Star she was working with regulators and industry, including the Missouri Bankers Association.
A spokesperson for Scott stood by the letter Scott wrote and said in a statement to Yahoo Finance on Monday that "capital must continuously be scrutinized to ensure it is risk based and is tailored to the bank's size, scope, and activities. What's happening with Silicon Valley Bank highlights why we cannot have a one-size-fits-all approach."
Despite receiving warnings from consumer advocates, including Accountable.US, that removing Dodd-Frank safeguards would invite the same kind of risky behavior that led to the financial crisis, the rollback still passed with unanimous Republican support after several members collected donations from the financial industry.
"What we just saw last week was the predictable result of the rollback in 2018," Funk said. "You remove the critical piece of oversight and it slipped through the cracks and it caused this collapse."
