This rapid and strong public intervention is for now The fall of Silicon Valley BankIt has become a major crisis in the US alongside Signature Bank and SilverGate. But what happened has placed the country’s economic authorities and regulators in the mirror of their deficiencies in the control and supervision of the banking sector. now rethink regulations and standards. And they do so amid an intense political battle raging between Democrats and Republicans over the causes and responsibilities of the current turbulence, with cross-charges being waged.
The Federal Reserve, which has launched an investigation into its own audit performance against Silicon Valley Bank, said it “waits” with it.take a lesson”, ‘According to The Wall Street Journal’ is working on tougher capital and liquidity requirements for medium-sized institutions like the California bank.
Additionally, the Fed is considering taking steps to expand stress tests to banks with assets between $100 billion and $250 billion. Therefore, limiting these tests since 2018 to only those exceeding 250,000 million, a handful of assets considered systemically vital, falling into this category after the crisis of 2008 and 2009, lowers the threshold significantly. category popularly known as “too big to fail”.
step change
It’s a step change for the Fed, which advocates restraining regulations for midsize banks imposed by its chairman Jerome Powell’s Dodd-Frank Wall Street Reform and Consumer Protection Act, passed under the authority of Barack Obama in 2010. Audit of any bank with more than $50 billion in assets established financial security requirements, I veto some risky operations or more demanding requirements guarantees that can cover unexpected losses or deposit leaks.
Powell took the position in 2017 as he passed a confirmation hearing in the Senate after being appointed chairman of the Federal Reserve by Donald Trump and taking over from Janet Yellen, a strong regulatory advocate. And when he first appeared before Congress in 2018, when he was already head of the US central bank, he was supported by this relaxation of control. The rule passed through the Houses, even though the nonpartisan Congressional Budget Office wrote that the Dodd-Frank bill “would increase the likelihood that a large financial firm with assets between $100 billion and $250 billion would fail.” majority republican support However from democrats (17 in the Senate and 33 in the House of Representatives) and after intense lobbying by regional and midsize organizations such as Silicon Valley Bank.
2018 law and political war
Opinions are divided on whether recent events are directly related to the loosening of Dodd Frank controls by the 2018 law, with some, such as progressive senators Bernie Sanders and Elizabeth Warren, doing so. Second, he asked Powell to withdraw himself from the Fed’s internal review (chaired by Michael Barr, vice president of audit) and gave the following assurance:their actions directly contributed” to last week’s bank crash.
Others, like Dennis Kelleher, director of financial reform organization Better Markets, think the 2018 law may have “modest impact.” Still, Kelleher chose Trump-appointed Fed officials in his statements to CNN to loosen bank control and not even take advantage of the powers vested in them by the law. In the case of Silicon Valley Bank, the business in question, for example, making plans against weaknessesSuch as a high percentage of deposits greater than $250,000 that are therefore not insured by the Federal Deposit Insurance Corporation (FDIC), or a concentration in a particular area and industry (California technology).
Most Republicans preferred to point to other factors as the reason for what happened. Florida Governor and potential 2024 Republican presidential candidate Ron DeSantis, who voted in favor of the 2018 bill as a congressman, is running a campaign that covers both diversity criteria, in which the crash was caused by a so-called ‘wake-up’ wave in banks. , equity and inclusion (DEI) and environmental, social and good governance (ESG in English, ASG in Spanish). Also, Joe Biden’s spending policies are blamed for the rise in inflation to which the Fed has reacted. aggressive rate hike policies this affected the SVB’s bond investments.
Although the Blocs are not unitary and there are divisions between Democrats and Republicans alike, the two conflicting resolutions make it difficult to approve anything in a divided Congress, where each party controls one of the Houses.