On Tuesday, 16 Republican attorneys general wrote a letter rebuking the Biden administration for not focusing on managing risk in its financial regulation, arguing that Silicon Valley Bank’s (SVB) failure is directly related to the administration’s “whole of government” approach to fighting climate change.
Though little known outside of Silicon Valley, SVB was among the top 20 commercial banks in the U.S. and its stunning collapse earlier this month was the largest failure since Washington Mutual in 2008. Treasury Secretary Janet Yellen said there would be no bailout of SVB, but the Biden administration quickly moved to protect depositors who had holdings above the $250,000 FDIC limit.
While many have pointed to the larger downturn in the tech sector and the bank’s idiosyncratic characteristics, attorneys general like Utah’s Sean Reyes and Texas’ Ken Paxton are pointing the finger squarely at the Biden administration.
“SVB’s failure is a warning sign that the administration’s environmental activism in its financial regulation not only ignores real financial risk but increases it. The administration should refocus regulation on true risk and stop pressuring financial institutions to meet impossible net-zero targets,” explained Reyes in a statement obtained by National Review.
In addition to Yellen, the letter is addressed to Federal Reserve chairman Jerome Powell, FDIC acting chairman Martin Gruenberg, and Office of the Comptroller of the Currency acting chairman Michael Hsu.
In being the preferred bank of climate tech and pursuing speculative sustainability investments, SVB was the perfect encapsulation of the Biden administration’s focus on climate risk, the AGs says. Its overexposure to the sector also meant it had a disproportionate number of accounts that were not FDIC-insured.
For Reyes and company, “SVB failed in part because of a rapid increase in interest rates over the past year that was necessary to fight record-high inflation. But…an inordinate focus on climate risk, and the related underinvestment in traditional energy infrastructure, substantially contributed to the inflation those interest rate increases were designed to combat,” the letter read.
“At some point, caring about climate change and caring about safety and soundness will come into conflict, and your statements and actions to date suggest that safety and soundness will be the one to give way. How is a bank examiner to act if he determines that safe and sound practices require a bank to take an action such as lending to energy intensive industries?,” the letter continued.
The solution in the view of Reyes and his fellow AGs is to clearly direct banks to pursue profitability, liquidity, and prudent risk management.
“You should make clear that no agency, nor any agency personnel, have authority to pressure any bank to increase its exposure of net-zero compliant customers or to decline to do business with companies for not being net-zero compliant,” the attorneys general said.
“You should also direct banks to stop setting emissions reductions targets that are inherently arbitrary and undermine public confidence in the financial system. Providing clear direction to financial institutions will help ensure that risks to the financial system are properly managed and restore confidence in the regulatory apparatus that has been lost,” they continued.
The lawyers also raised the question of whether there was a political motivation behind the Biden administration’s decision to guarantee all SVB deposits.
“It is not unreasonable to question whether the government’s unprecedented step was not an effort to stave off general economic collapse, but instead an attempt to provide financial support to an important constituency that did not exercise proper vendor oversight,” they wrote.
Yellen was grilled by Senator James Lankford (R., Ok.) on this very issue at a Senate hearing last week.
“I’m concerned you’re…encouraging anyone who has a large deposit at a community bank to say, we’re not going to make you whole, but if you go to one of our preferred banks, we will make you whole,” Lankford said to Yellen’s protests.
Congressional oversight into the SVB collapse will continue in the weeks to come. The House Financial Services Committee is holding its first hearing on the bank’s failure on March 29.