Highlights How GOP Deregulation Bill Weakened Regulators’ Ability to Supervise Banks
“The American public is tired of the super wealthy pocketing bonuses and leaving working class folks holding the bag for their fiscal mismanagement. They are even more tired of Congress allowing them to do it.”
WASHINGTON – Today, Congresswoman Ayanna Pressley (MA-07), a member of the House Financial Services Committee, questioned federal banking regulators about the Silicon Valley Bank (SVB) collapse and how Republicans’ 2018 bank deregulation bill contributed to it. Rep. Pressley specifically highlighted how the legislation weakened the Federal Reserve and regulators’ supervision of SVB.
The Committee’s hearing follows calls from Rep. Pressley for Congressional hearings in response to the collapse, and is the first of multiple hearings the Committee expects to hold on this issue.
In the days following SVB’s collapse, Rep. Pressley joined Senator Elizabeth Warren (D-MA), Congresswoman Katie Porter (CA-47), and dozens of lawmakers in introducing legislation to repeal Republicans’ rollback of critical banking protections in 2018 and restore Dodd-Frank protections.
A copy of her exchange with the witnesses can be found here, and a transcript is available below.
Transcript: Rep. Ayanna Pressley Questions Bank Regulators on SVB Collapse at Committee Hearing
House Financial Services Committee
March 29, 2023
REP. PRESSLEY: Thank you, Chair McHenry, Ranking Member Waters, and all of our witnesses for joining us for this critical hearing. I know it’s been a long morning. But that being said, I truly hope this is the first and not the last hearing that we’re gonna have on these recent bank failures.
When Silicon Valley Bank collapsed my office received calls, texts, and letters from constituents throughout our district who were genuinely shocked and afraid for their future.
Affordable housing residents unsure about the status of mortgages. Tech companies not able to pay their employees. Small businesses worried they had just lost most of their money.
Now while I’m glad we avoided the worst possible scenario, Congress should consider SVB collapse a wake-up call and take action.
After the 2008 Financial Crisis, Congress stepped up to enact Dodd-Frank, a comprehensive package of regulations, in order to prevent bank failures and systemic risks that hurt the economy.
However, in 2018, the Republican majority in Congress passed a deregulation bill that stripped away crucial requirements and got rid of enhanced prudential standards. Donald Trump and Republicans, including some of my colleagues sitting in this very room, celebrated signing this dangerous piece of legislation.
The 2018 deregulation law specifically made it easy for Silicon Valley Bank and Signature Bank to engage in risky management practices with little to no oversight and we must rightfully assign some of the responsibility for this bank turmoil to deregulation efforts.
Vice Chair Barr, when Congress passed the deregulation bill in 2018, which was lobbied for by banks like SVB, is it fair to say that it reduced supervision requirements by the Fed for small and medium sized banks?
VICE CHAIR BARR: The overall effect of the law was for the smallest banks to reduce regulatory burden for banks within 50 to 100 billion in range to limit the Federal Reserve’s discretion with respect to those institutions. But for institutions over 100 billion the Federal Reserve retained discretion to do something different. It chose in 2019 to put in in place a set of rules that, I think, had the effect overall of reducing supervision and regulation of such firms.
REP. PRESSLEY: Right. So, it definitely did. Deregulation bill relaxed requirements for stress tests and resolution plans.
The dangerous and irresponsible nature of this deregulation bill was completely predictable. In no way was this turmoil inevitable. The then-Federal Reserve Governor Brainard opposed it as well as both of you: Vice Chair Barr and Chair Gruenberg.
And yet here we are. In the aftermath of the collapse of SVB and Signature Bank, it’s clear that the Republican deregulation bill shares the blame alongside Treasury, the Federal Reserve, and the FDIC due to the lapses in supervision and oversight.
Chairman Gruenberg, for folks who are concerned about the future of small and medium-sized banks in this country, what assurances can you give them?
CHAIRMAN GRUENBERG: Well, Congresswoman, as a general matter, our small and medium sized banks remain in good condition, including their liquidity and I think the actions we took, it did stabilize the system. And I think, as I indicated, any expense by the deposit insurance fund to cover uninsured depositors will be imposed through a special assessment on the industry and to the institutions most directly benefitted so we’re gonna try to be thoughtful in this process.
REP. PRESSLEY: Thank you. And I am requesting that each of your agencies provide my office and this Committee, by May 1st, a list of recommended regulations that need to be enacted to strengthen the banking industry and to prevent future failures.
The story of SVB’s collapse is the story of a Republican administration in cahoots with the banking industry to weaken our financial regulations. But it is also a story of regulators’ failure to do their number one job: regulate banks.
And since I am accused of this often, I think I will close with a “woke-ism.”
The American public is tired of the super wealthy pocketing bonuses and leaving working class folks holding the bag for their fiscal mismanagement. They are even more tired of Congress allowing them to do it.
It’s time to regulate.
Thank you and I yield.