“During the Obama-Biden administration, we put in place tough requirements on banks, like Silicon Valley Bank and Signature Bank, including the Dodd-Frank law, to make sure that a crisis we saw in 2008 would not happen again,” Biden said, referring to the 2010 law (PL 111-203). “Unfortunately, the last administration rolled back some of these requirements. I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again.”
Bigger buffer? More scrutiny?
The 2018 law raised the threshold at which a bank would be considered too big to fail to $250 billion from $50 billion. Banks considered systemically important under the 2010 financial overhaul law were required to keep more capital on hand, undergo stress tests and produce a “living will” that would provide for orderly dissolution. Even though the law kept SVB off the systemic risk list, regulators nevertheless cited that risk to justify the action Sunday.
The 2018 law took effect just as SVB was moving above the $50 billion asset threshold. With $209 billion in assets at the end of last year, according to the FDIC, the bank would have been subject to enhanced requirements before passage of the 2018 law, and closer scrutiny, including Fed stress testing.
Rep. Brad Sherman, D-Calif., said regulators missed the mismatch between assets and liquidity needs at SVB because Congress limited their visibility into banks of that size.
“It took these medium and large institutions and caused them to be regulated pretty much as if they were small,” Sherman said in a interview. “As a result, the folks in Silicon Valley took risks that I can’t imagine they would have gotten away with under the other program.”