The Biden administration is calling for the reinstatement of banking rules that were rolled back during the Trump era, according to a White House fact sheet released Thursday.
The proposal, which follows the collapse this month of Silicon Valley Bank and Signature Bank, fits into Biden’s efforts “to strengthen oversight and regulation of larger banks so that we are not in this position again,” the Biden administration said.
“The Obama-Biden Administration put in place strong requirements — primarily through the Dodd-Frank Act and subsequent regulations and supervision — to reduce the risk of future banking crises,” Biden officials said. “Unfortunately, Trump Administration regulators weakened many important common-sense requirements and supervision for large regional banks like Silicon Valley Bank and Signature Bank, whose recent failure led to contagion.”
The White House called for federal bank regulators, in consultation with the Treasury Department, to consider reforms that would reduce the risk of future banking crises.
Recommended changes outlined in the White House fact sheet include the reinstatement of liquidity rules and enhanced liquidity stress testing for banks with assets between $100 billion and $250 billion.
The White House also encouraged bank regulators to use "rigorous liquidity stress tests that factor in the risks of faster withdrawals in an always-on online environment.”
Liquidity issues contributed to the failure of Santa Clara, California-based SVB, where customers used online banking platforms to withdraw $42 billion in deposits March 9.
The bank told regulators March 10 that it was expecting another $100 billion in outflows that day, Federal Reserve Vice Chair for Supervision Michael Barr told the Senate Banking Committee on Tuesday.
Under the White House proposal, firms that fall within the $100 billion to $250 billion range would be required to provide regulators with comprehensive resolution plans, or living wills.
The Biden administration also called for regulators to ensure that the costs of replenishing the Deposit Insurance Fund, which is made up of fees paid by banks, does not fall on community banks.
“Current law requires the [Federal Deposit Insurance Corp.] to levy a special assessment on banks to recover losses to the DIF and gives the FDIC discretion on how to implement the assessment,” the White House said.
FDIC Chair Martin Gruenberg, testifying at Tuesday’s hearing, said the regulation of SVB and Signature Bank — particularly with regard to capital, liquidity and interest rate risk — “merits serious attention.”
“One clear takeaway from recent events is that heavy reliance on uninsured deposits creates liquidity risks that are extremely difficult to manage, particularly in today’s environment where money can flow out of institutions with incredible speed in response to news amplified through social media channels,” Gruenberg said.
Treasury Secretary Janet Yellen, in a speech Thursday, echoed the White House’s sentiment regarding changes to bank regulation under the Trump administration.
"Regulatory requirements have been loosened in recent years," she said. "I believe it is appropriate to assess the impact of these deregulatory decisions and take any necessary actions in response."
In a response to the White House announcement, The Bank Policy Institute, which represents the nation’s largest banks, warned against responding to “bad management and delinquent supervision” with additional regulation.
“The Fed has barely begun its promised review. This has a strong feeling of ready, fire, aim,” the group said.
Dennis Kelleher, CEO of the nonprofit Better Markets, applauded the Biden administration’s proposal.
“Yes, the bankers, their lobbyists, and allies are going to scream and make all sorts of baseless claims about how the sky will fall if they are properly regulated, as they always do and have been doing since the Great Crash of 1929,” he said in a statement Thursday. “We look forward to prompt action by the agencies following up on today’s important words and directives from the White House.”