President Joe Biden is hoping to turn the Silicon Valley Bank collapse into a legislative victory, but he’ll face plenty of Republican resistance along the way.
The president spent last week calling to reinstate banking regulations that were rolled back five years ago while seeking new punishments for banking executives whose operations fail.
SVB COLLAPSE: BANK CRISIS BECOMES ANOTHER BIDEN VS. TRUMP WAR AHEAD OF 2024
“I’m firmly committed to accountability for those responsible for this mess,” Biden said Friday. “No one is above the law — and strengthening accountability is an important deterrent to prevent mismanagement in the future.”
Echoing Biden, Democrats are sounding the alarm on Capitol Hill.
Sen. Elizabeth Warren (D-MA) and Rep. Katie Porter (D-CA) have introduced legislation to reverse the partial Dodd-Frank Act rollback that Congress approved in 2018, while Sen. Bernie Sanders (I-VT) laid the blame at the feet of Donald Trump.
“Let’s be clear. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill signed by Donald Trump that I strongly opposed,” Sanders said. Biden himself has also blamed the former president.
But Republicans say there’s more to the story than the simple cause and effect of regulations relaxed, banks fail.
For one, 17 Senate Democrats voted to approve the rollback on midsized banks, as did 33 Democrats in the House. But Republicans also point to existing regulations that should have placed a red flag over SVB, arguing that better enforcement is the answer.
“This bank was supervised by the Federal Reserve and the state of California — SVB’s failure is the result of mismanagement and failed supervision,” said a spokesperson for Sen. Tim Scott (R-SC). “Regulators said SVB was ‘idiosyncratic.’ If that’s the case, how did they miss the idiosyncrasies and the risk? If this is such an outlier in the system, why wasn’t action taken? Regulators failed to do their job with regards to SVB, and if regulators can’t do their job with what the law gives them now, why is giving them more regulations the better route?”
Going on the attack, Republicans point at high inflation, which the Federal Reserve has been combating with aggressive interest rate hikes that played a role in SVB’s collapse. Republicans blame Biden, and specifically the $1.9 trillion American Rescue Plan Act he signed soon after taking office, for pushing inflation from 1.4% the month he took office to a peak of 9.1% last summer, spurring the rate hikes.
Some conservatives argue that banks will work their way around any new regulations and question the need for government interference in the sector.
“When any other business is reckless or irresponsible, we allow them to go bankrupt,” said EJ Antoni, a research fellow at the Heritage Foundation. “I’m not sure why we treat banks differently. And I’d say the fact that we do is partly why we keep having problems in the banking industry. These people know that when things go South, they will get bailed out.”
Biden is attempting to address that issue by calling for punishments on executives when banks fail. His Friday statement called for empowering regulators to reclaim compensation from executives, impose civil penalties, and even ban executives from the industry.
Any accompanying fact sheet cited the SVB CEO reportedly selling more than $3 million worth of shares before the collapse as activity that should be regulated.
And while the president is calling on Congress, he could try to make a go of things on his own as well. The Biden administration has been aggressive about taking action on its own, from student loans to child care to gas stoves to gig workers.
With skeptical Republicans leading the House of Representatives and conservatives dominating the Supreme Court, Biden may have trouble getting his initiatives through.
But the president is likely winning the all-important battle to reach voters, argues Democratic strategist Brad Bannon.
“It’s a great message from the Biden administration about cause and effect — you deregulate banks, they start blowing up,” Bannon said. “The reality is, besides Republicans, most Americans favor the strict regulation of banking institutions.”
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While inflation played a major role in the Fed jacking up interest rates, which played a major role in the SVB collapse, Bannon says most voters are going to connect more directly with the regulation argument.
“It speaks to populism. It speaks to big businesses failing the public,” said Bannon. “The Republicans failed the public by deregulating banks. This is a battle that Joe Biden definitely wants to fight with House Republicans.”
