As US politicians from both parties argue over potential measures to support the financial system and trade accusations about who is to blame for the lenders’ collapse, the failure of Silicon Valley Bank has revealed new splits on Capitol Hill over banking reform.
Last week, progressive Democrats responded to President Joseph Biden’s request to “strengthen the laws for banks”. Elizabeth Warren, a senator from Massachusetts, and Katie Porter, a representative from California, moved fast to introduce a bill to overturn a 2018 law that had softened stricter restrictions put in place during the 2008 financial crisis.
Yet, MPs from other political parties and inside the party have disagreed on how to handle the consequences. The Senate’s top Democrat, Charles Schumer, refrained from endorsing the revised plan, instead telling reporters on Wednesday (Thursday AEDT) that “strong legislation is needed and that perhaps we can put something together that is bipartisan.”
The Biden administration is allegedly granting “bailouts” that will put lenders and families in his home state “on the hook for the mismanagement of a Bay Area bank,” according to Steve Daines, a Republican senator from Montana. He is referring to the San Francisco-Silicon Valley metropolitan area.
He continued, “The federal government shouldn’t be siding with wealthy elites over struggling folks.
Experts predict that such splits will make it difficult to enact any legislation addressing the aftermath, especially given that Republicans now control the House of Representatives and Democrats have a slim majority in the Senate.
Ben Koltun, director of research at Beacon Policy Advisors, said: “A crisis is dreadful thing to squander, and it’s a driver for a lot of extra attention and development on anything remotely related to the collapse of SVB and the government response. “It’s hard to see a route ahead on any form of legislation,” he continued.
The Trump administration’s weakening of Dodd-Frank, the 2010 law that restructured the US financial regulatory system, which involved raising the asset threshold for banks deemed “too big to fail” from $50 billion to $250 billion, has been linked by the White House to the collapse of SVB.
Less than a week after SVB’s failure, a number of bills are being discussed in Congress, with scores of Democrats endorsing Senator Warren and Ms. Porter’s plan to reverse the Trump administration’s revisions. Yet a lot more people, including Schumer, have so far held back.
However, Republican lawmakers have gone on the offensive, accusing Democrats of “blame-shifting” and “rushing to adopt knee-jerk and unnecessary rules”.
According to Mike Crapo, the Republican senator from Idaho who led the charge for the 2018 reforms, wage earners need a 14.8% pay increase to keep up with this level of inflation. “The fact is that President Biden – through all of the spending that he did in the last Congress and the last two years – has driven inflation up to the point where wage earners need to get a 14.8 per cent wage increase just to hold even with this kind of inflation,” Crapo said on Tuesday.
In an attempt to link the administration’s fiscal policies to the banks’ failure, Kevin McCarthy, the Republican Speaker of the House, tweeted on Tuesday: “Biden’s reckless spending created record inflation and quick interest rate hikes that destroyed family budgets and banks too. Restoring fiscal sanity is necessary.
Kevin Cramer, a Republican senator from North Dakota and a member of the influential Senate banking committee like Senator Crapo, counselled caution in the meantime.
Senator Cramer stated that “this issue warrants scrutiny to ascertain the origin of current events and the bureaucracy’s response to it. “A level appraisal of these changes is needed instead of hastily enacting knee-jerk and disproportionate regulations.”
Some Republicans responded by bringing up the culture wars and asserting that SVB’s dedication to environmental, social, and governance concerns, as well as diversity, equity, and inclusion, had compromised its ability to be financially stable.
Josh Hawley, a Missouri Republican senator, tweeted earlier this week, “So these SVB men spend all their time funding woke trash (‘climate change solutions’) rather than actual banking, and now they want a bailout from taxpayers to save them.
Since then, Senator Hawley and Mike Braun, a Republican senator from Indiana, have sponsored their own legislation that would prevent banks from charging customers for any “special assessment” fees imposed by the Federal Deposit Insurance Corporation.
Former Democratic senator from North Dakota Heidi Heitkamp, who co-sponsored the 2018 repeal of Dodd-Frank with Senator Crapo, expressed frustration with both conservatives looking to score political points and progressive members of her own party who were calling for a quick rollback of the changes. The issue in Washington is this. They jump to their political ideology and claim that this is what caused it before they have all the information or done the necessary analysis, she added. “Everyone wants to find a solution before they comprehend what the issue is.”
