Congressman Mike Flood (R-Neb.) is pushing back on calls for new regulations after the sudden collapse of the Silicon Valley Bank (SVB) last week, saying lawmakers first need a better understanding of what led to the bank’s failure.
“We have to find out what was happening in Silicon Valley Bank; we need to find out what the regulators were doing,” Flood told NTD, the sister media outlet of The Epoch Times, on March 13.
Flood said the immediate call for new rules on banks could become “another round of regulation for regulation’s sake” and called for a greater understanding of how SVB failed before Congress takes any action.
Flood noted that SVB had seen a dramatic financial expansion in the last few years. According to data compiled by Macrotrends, the bank was valued at about $51 billion at the start of 2018 and grew to $220 billion by March 2022. Flood said SVB’s “meteoric rise” led him to question what existing regulators were doing before the bank collapsed.
Biden Blames SVB Collapse on Trump De-Regulations
In his White House remarks on Monday, Biden asserted that President Donald Trump and Republicans were to blame for SVB’s collapse because they supported deregulation.“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 the crisis we saw in 2008 would not happen again,” Biden said on Monday. “Unfortunately, the last administration rolled back some of these requirements.”
Under Dodd-Frank, banks worth $50 billion or more in assets are considered systemically important financial institutions (SIFIs) or banks colloquially referred to as “too big to fail.” Out of concern that the failure of a SIFI would cause widespread economic harm, these “too big to fail” banks were subjected to enhanced supervision and regulatory standards. The Trump-era change in regulations changed the threshold for a SIFI from $50 billion in assets to $250 billion in assets but left it up to the discretion of the Federal Reserve Board (FRB) to determine what enhanced standards it would apply to banks with $100 billion or more in assets.
Some economists have disputed Trump’s share of the blame.
Peter Schiff, the chief economist and global strategist at Euro Pacific Capital, also argued that government banking regulations incentivized financial institutions to purchase long-term Treasurys and mortgage-backed securities.
Not a Typical Bank
SVB began in 1983 and advertised its services to businesses, ranging from startup and venture funding to later stages in a business’s life cycle.“This by no means is a community bank,” Flood said of SVB.
“There’s a big difference between a bank like this, and the banks that we use every single day across the United States, the banks that I rely on here in Nebraska, that we know are safe,” Flood added.
In addition to noting the dramatic increase in SVB’s total value of assets in recent years, Flood also indicated that about 90 percent of depositors at SVB had deposited over $250,000.
To replenish all SVB depositors, the FDIC will replenish the fund through a special assessment levied on its member banks. The evaluation serves as a sort of special insurance premium for the banks after these recent failures, enabling the FDIC to respond to future bank failures.
“Do we now send the message that every single bank that has a failure, we’re not going to set ourselves at $250,000? We’re gonna go up to make people absolutely whole?” Flood asked. “People have to understand that there’s a limit of [$250,000] for a reason.”