Democrats on Capitol Hill are defending their vote on the 2018 bank deregulation bill that President Biden and other members of the party blame for the spectacular collapse of Silicon Valley and Signature Bank last week.
Forty-nine Democrats — 33 in the House and 16 in the Senate — plus Sen. Angus King (I-Main), who attends caucuses with Democrats, joined Republicans in 2018 to pass a deregulation bill.
Nineteen of them remain in the House, all of whom will face electors next year, and 12 are senators, five of whom are up for re-election in 2024. Sen. Kirsten Sinema (I-Ariz.), who was in the House as a Democrat in 2018 and voted for the deregulation bill, which is also up for re-election next year.
Supporters of the legislation, which former President Trump signed into law, saw it as a way to provide relief to small and medium-sized banks that were grappling with tough regulations put in place under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, which followed the 2008 financial crisis.
But a number of Democrats now blame the backtracking on the failure of Silicon Valley Bank and Signature Bank — which were both exempt from regulations in 2018 — putting Democratic supporters of the measure on the defensive as the banking blame game heats up on Capitol Hill.
When asked if she regretted voting for the bill, Sen. Debbie Stabenow (Mitch), a member of the Democratic leadership who will retire next year, told The Hill, “Not at all.”
“It was very important to me to make sure that our smaller banks, our community banks and our credit unions, which didn’t cause the financial crisis in 2008, had some resilience,” she said.
Rep. Josh Gottheimer (D-N.J.) also said he doesn’t regret his vote to roll back, calling the Dodd-Frank regulations “impossible” for small, medium-sized and regional banks.
“You had a set of rules that were applied to literally the few largest institutions in the country and also to our small and medium-sized regional banks. It was impossible, and they were all merging and already selling to the bigger banks and you have no community banks left in this country,” he said during Interview with CNN on Tuesday.
The 2018 bill — known formally as the Economic Growth, Regulatory Relief and Consumer Protection Act — exempted some banks from the Fed’s stricter oversight and stress tests imposed by the Dodd-Frank Act by raising the asset threshold for those regulations from $50 billion to $250 billion.
Silicon Valley Bank and Signature Bank both fall into this range.
“Let’s be clear. The failure of the Silicon Valley Bank is a direct result of the ridiculous 2018 Banking Deregulation Bill signed by Donald Trump that I vehemently opposed,” Sen. Bernie Sanders (I-Vt.) wrote in a statement.
Sen. Elizabeth Warren (D-Massachusetts), who voted against the 2018 bill and is now leading efforts to repeal the legislation, said Silicon Valley Bank (SVB) and Signature Bank would have been subject to stronger liquidity and capital requirements in order to withstand financial shocks “if Congress and the Federal Reserve had not backed down.” For the most stringent supervision.
“They would have been required to take regular stress tests to expose their weaknesses and support their business,” she wrote in an opinion piece for the New York Times. But since those requirements were abolished, when the management of an old-fashioned bank hit SVB, the bank could not stand the pressure – and Signature’s collapse was imminent.
Federal regulators last Friday acquired Silicon Valley Bank, a California-based institution primarily interested in start-ups, after an intense scramble for the bank amid liquidity issues. Days later, state regulations seized Signature Bank, a New York-based institution that dealt largely with real estate firms and law firms, after another rush by customers to withdraw deposits.
The Signature Valley Bank collapse is now the second largest bank collapse in American history, and the Signature Bank collapse is the third largest.
Sen. Tim Kaine (D-Va.), who stood by his vote on the 2018 deregulation bill, told The Hill that Old Dominion lost a significant portion of its banks between 2010 and 2018 because smaller banks, faced with having to hire compliance departments, It decided to sell to larger organizations, which led to branch closures and staff layoffs.
“My community banks, with you getting a few years of implementation, kind of brought up this problem. They said, look, the law designed to stop is too big to fail is also too small to succeed,” said Kane, who will be re-elected in 2024.
Community banks, when  The bank bill was put together, like, we’re very much in favor of that. They have been solidly supportive and still are, and have done a good job in Virginia the past few years.
Sen. Gary Peters (D-Michigan) also said he does not regret his 2018 vote to support the deregulation bill, and cautioned against jumping to conclusions about the cause of the meltdowns.
“I don’t know all the facts,” Peters said. “Now we have an investigation underway; the feds are going to look at exactly what happened. I don’t think we should jump to any conclusions, so we’re actually investigating and looking at the facts.”
The Justice Department and the Securities and Exchange Commission are investigating the Silicon Valley bank collapse, and the Federal Reserve has launched its own investigation. The central bank said the review of the investigation, which is being led by its deputy head of oversight Michael Barr, will be made public on May 1.
Sen. Chris Coons (D-Del), who voted in favor of the 2018 bill, said it was “premature” to tie the five-year-old bill to last week’s collapse.
“I think it’s too early to say that we know that this action by regulators under the previous administration — or legislatively this action under the previous administration — made the difference,” Hill said. “We don’t know that.”
The senator cited other factors that may have led to the bank’s collapse, including failures in management, failures to plan for inflation risks, and failures in regulatory oversight.
But Warren and Rep. Katie Porter (D-Calif.) are drawing a direct line between troubled banks and the 2018 bill. The progressive pair, along with dozens of other Democrats, introduced a bill on Tuesday that would reverse the 2018 Dodd-Frank reversal by restoring a threshold regulation to 50 billion dollars.
The legislation comes after Biden called on Congress and banking regulators this week to “strengthen rules for banks to reduce the likelihood of this type of bank failure happening again and protect American jobs and small businesses.”
Stabenow said she has concerns about the threshold under Warren Porter’s bill.
“The reason I supported the bill originally was because I felt the $50 billion threshold was too low. And so she moved it down that whole road. That’s my question.
“And I think we need to look at, you know, what really happened here? I mean, there’s a complete incompetence to this bank, for sure. The question is what could make a difference? That’s what I care about,” she later added. “I think it’s just looking, You know, what can we do to remedy this situation without going back to hurting the small banks.”
Coons said it was “too early” to consider “specific solutions” when the cause of the bank’s failure remains unknown, and Kane said he first wanted to review Barr’s analysis before making a decision on Warren’s bill.
But if Barr said canceling the rollback would be a good thing, Kane said he would “incline positively.”
One supporter of Warren’s bill may be Rep. Andre Carson (D-Indiana), who endorsed the 2018 rollback. Asked about his vote, the congressman told The Hill in a statement that in light of the bank closings, it’s time to put standards back in the direction of Dodd-Frank.
“In light of recent events, I believe it is time to review and update these changes to bring the requirements closer to our original Dodd-Frank standards, which I was proud to vote to establish,” he told The Hill. “This will help strengthen our financial system to keep it resilient and reliable as the economic ebbs and flows.”
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