Dodd-Frank bank regulations rolled back under Trump

On March 10, federal regulators closed Silicon Valley Bank after many depositors rushed to withdraw their finances all of sudden.

The federal takeover marked the second-largest bank failure because the cave in of Washington Mutual all over the 2008 monetary disaster. Two days after the Silicon Valley Bank failure, regulators seized New-York based totally Signature Bank.

In the times after the banks collapsed, other folks online, together with Sen. Elizabeth Warren (D-Mass.), claimed former President Donald Trump “rolled back” regulations for banks. President Joe Biden additionally addressed the purported rollback of regulations during a speech on March 13. 

“During the Obama-Biden administration, we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank Law, to make sure the crisis we saw in 2008 would not happen again,” Biden stated. “Unfortunately, the last administration rolled back some of these requirements.”

Were bank regulations rolled back all over the Trump management?

Yes, bank regulations had been rolled back all over the Trump management. But it’s tricky to mention whether or not the stricter necessities would have averted the cave in of Silicon Valley and Signature Banks. 

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In May 2018, former President Donald Trump signed a regulation to roll back stricter necessities for banks like SVB that had been put into position just about 8 years previous. 

In 2010, Congress handed the Dodd-Frank Act all over former President Barack Obama’s management. The law aimed to “prevent the excessive risk-taking” that resulted in the 2008 monetary disaster, the Obama White House said at the time. 

The Dodd-Frank Act imposed sure necessities on “systemically important financial institutions (SIFIs),” or banks with a minimum of $50 billion in belongings.

In 2018, Trump signed the Economic Growth, Regulatory Relief and Consumer Protection Act into regulation, which raised that threshold to $250 billion. But it did give the Federal Reserve the solution to observe stricter necessities for banks with a minimum of $100 billion in belongings.

The necessities defined within the Dodd-Frank Act integrated annual “stress tests” carried out by way of the Federal Reserve, enhanced capital and liquidity requirements, and a “living will” that might element a bank’s plan for solution within the match of a failure, according to a 2013 report from the Government Accountability Office (GAO).

A “stress test” is a simulation or research carried out to evaluate how a bank shall be impacted under opposed marketplace stipulations, reminiscent of a marketplace crash or recession, the Corporate Finance Institute explains. 

More from VERIFY: Why other folks with as much as $250K of their bank account are secure in a bank cave in

“The rationale for the rollback in 2018 was that [the regulations] were imposing a burden on these smaller institutions and, by removing that, then they can perform their functions a bit better,” David Ely, a finance professor at San Diego State University, stated.

Silicon Valley Bank, which had $209 billion in assets at the end of 2022, would have robotically been topic to the stricter Dodd-Frank regulations if the pre-2018 threshold had been nonetheless in position these days, Ely stated. 

This could also be the case for Signature Bank, which had just over $110 billion in assets on the finish of 2022. 

After the new bank disasters, U.S. Rep. Katie Porter (D-Calif.), Sen. Warren and different lawmakers introduced legislation to carry back the stricter Dodd-Frank regulations. But it’s tricky to mention whether or not the ones necessities would have averted the bank collapses. 

“I think the fundamental causes of their collapse were more due to some poor management decisions, and maybe some red flags that were overlooked in the basic regulation of the institution,” Ely stated. 

Silicon Valley Bank had many investments in long-term government bonds and mortgage-backed securities, which plummeted in worth because the Fed raised rates of interest. Both Silicon Valley and Signature Banks additionally had a prime choice of deposits that weren’t insured by way of the government, making them “more vulnerable to bank runs,” Jay Hatfield, CEO at Infrastructure Capital Advisors, instructed VERIFY. 

The Associated Press contributed to this document.