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Biden Eyes New Regulations As Congress Dives Into Silicon Valley, Signature Bank Failures

President Joe Biden is expected to tighten regulations on banks, prompted by the biggest banking collapse since the 2008 crisis

President Joe Biden is expected to tighten regulations on banks, prompted by the biggest banking collapse since the 2008 financial crisis.

According to a Washington Post report citing two people familiar with internal discussions, the Biden administration is gearing up to slap new rules on banks following the collapse of SVB Financial Group and Signature Bank.

U.S. President Joe Biden speaks about the banking system in the Roosevelt Room of the White House on March 13, 2023 in Washington, DC. President Biden gave an update regarding the collapse of Silicon Valley Bank in California and how his administration is handling the ripple effects. ANNA MONEYMAKER/BENZINGA

Although the banks were not bailed out, depositors were backstopped by the government in an effort to strengthen public confidence in the financial system. Now the White House wants to put tougher rules in place to prevent a similar occurrence altogether, the report said. “When banks fail due to mismanagement and excessive risk taking, it should be easier for regulators to claw back compensation from executives, to impose civil penalties, and to ban executives from working in the banking industry again.”

“No one is above the law – and strengthening accountability is an important deterrent to prevent mismanagement in the future,” Biden said in a statement.

The new banking rules could include higher capital requirements, formal plans for how to handle any future crises and regular stress tests. 

“Silicon Valley was not going to be stress-tested until 2024 under the Fed’s tailoring provisions — that’s just insane for a bank of its size,” former FDIC attorney Todd Phillips reportedly said.

Details of the potential solution remain unknown, but Biden aims to reestablish measures that were deregulated during the Trump administration, per the Post.

The report indicates the new rules would have to be enacted by the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency separately.

FDIC chair Martin Gruenberg, the Federal Reserve’s Vice Chair for Supervision Michael Barr, and the Treasury Undersecretary for Domestic Finance Nellie Liang all testified in front of Congress this week. 

Chairman Patrick McHenry, R-N.C., questions witnesses during the House Financial Services Committee hearing titled The Federal Regulators’ Response to Recent Bank Failures, in Rayburn Building on Wednesday, March 29, 2023. Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation, Michael Barr, vice chair for supervision of the Board of Governors of the Federal Reserve System, and Nellie Liang, under secretary for Domestic Finance, U.S. Department of Treasury, testified. TOM WILLIAM/BENZINGA

In an exchange with lawmakers, Barr said Silicon Valley Bank had been identified as being “not well managed” ahead of its collapse, which suggests supervisory action was not enforced when it should have been.

In continued testimony on Wednesday, all three government officials said they believe supervision should be strengthened. The Fed is undergoing a self-assessment to determine if it failed in any of its supervisory roles, but banks were allowed to fail because they failed to address risks, they said. 

New legislation introduced by Sen. Elizabeth Warren on Wednesday aims to give regulators the necessary tools to hold executives of failed banks responsible.

“Americans are sick and tired of fat cat bankers paying themselves handsomely while risking other people’s hard-earned money,” Warren said.

Democrats have argued that the repeal of the Dodd-Frank is what led the collapse of Signature Bank and Silicon Valley Bank.

“I can tell you from Signature’s part was that it triggered a run on deposits in our bank irrationally,” said former Congressional representative Barney Frank, who on the board for Signature Bank & the author of Dodd-Frank. “Because whatever Silicon Valley had with regard to high-tech and crypto, we don’t. We’re not a big high-tech lender. We’re a big New York City housing lender more than anything else, and commercial property.

Produced in association with Benzinga

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