by Barron’s reporter Carleton English discusses who is responsible for the failure of Silicon Valley Bank in Varney & Co.
The top Democrat on the Joint Economic Committee (JEC) in Congress blames the regulatory rollback under former President Trump for the failure of Silicon Valley Bank and calls for new “proactive regulation”.
Senator Martin Heinrich, DN.M., the JEC chairman-elect, released a statement Monday praising the Biden administration’s actions to stabilize the banking system and tech industry after Silicon Valley Bank (SVB) filed for bankruptcy and had been taken over by the bank Federal Deposit Insurance Corporation (FDIC).
“While I’m glad the administration and regulators acted quickly to ensure small businesses and depositors didn’t bear the brunt of this failure, this catastrophe could conceivably have been prevented,” Heinrich said.
In his statement, Heinrich criticized bipartisan reforms on elements of Dodd-Frank in 2018, saying that deregulation set the stage for the SVB’s failure.
LIBERALS BLAME TRUMP FOR COLLAPSE OF SILICON VALLEY BANK RELATED TO 2018 BILL
Senator Martin Heinrich, DN.M., calls for more regulation of banks after the collapse of the Silicon Valley bank. (Demetrius Freeman-Pool/Getty Images/Getty Images)
“The reforms in the Dodd-Frank Act were introduced to ensure the stability of the US financial system, in part by allowing regulators to have a clear look at the health and soundness of individual banks. Unfortunately, President Trump’s regulatory rollback has led us here,” Heinrich said.
The New Mexico senator noted that the Joint Economic Committee had named SVB Financial Group in 2018 as one of the banks that would face almost none of the regulations originally introduced by Dodd-Frank under the legislative changes.
SVB went bankrupt last week after depositors panicked over the health of the bank and rushed to withdraw their funds. It was the second largest bank failure in US history. The bank had $209 billion in assets and $175.4 billion in deposits last year, according to the FDIC.
| ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| SIVB | SVB FINANCIAL GROUP | 106.04 | -161.79 | -60.41% |
On Wednesday, the bank posted losses of $1.8 billion as its share price fell 60%. By Friday, the FDIC had taken control of its operations and had begun making plans to return customers’ insured deposits that they wanted.
Over the weekend, citing “systemic risk” from the collapse of the SVB, the Treasury Department, FDIC and Federal Reserve announced that FDIC insurance funds will be used to prevent depositors from losing money, even if their deposits meet the statutory requirements $250,000 exceeds deposit insurance limit. Critics called the move a bailout, but the Biden administration disputed that characterization, noting that “no losses related to the dissolution of Silicon Valley Bank will be borne by the taxpayer.”
SILICON VALLEY BANK: FED SAYS VICE CHIEF TO REVIEW WHAT LEADS TO FAILURE
A customer stands outside a closed Silicon Valley Bank (SVB) headquarters in Santa Clara, California, March 10, 2023. Silicon Valley Bank was shut down by California regulators Friday morning and put under US federal agency control (Justin Sullivan/Getty Images/Getty Images)
Heinrich spoke positively of these “important steps” being taken to ensure companies that deposited with the SVB keep their money and continue to payroll.
“Rather than bailing out shareholders or using taxpayers’ money, the Federal Reserve and other agencies will collect money from other regulated banks to protect the customers who have banked with SVB, including many small businesses,” Heinrich said.
“While I agree with this solution and have faith in the ability of regulators to deter further bank runs, these measures are not a substitute for proactive regulation and formal deposit insurance requirements that meet the needs of today’s economy.”
Conservative economists dispute the need for increased regulation in response to the SVB’s failure.
EJ Antoni, research associate in regional economics at the Heritage Foundation’s Center for Data Analysis, told FOX Business on Saturday that the collapse had “nothing to do with Trump or Dodd-Frank” and had more to do with an “unusual confluence of events.” .
SILICON VALLEY BANK BREAK-IN UNDER INVESTIGATION BY JUDICIAL DEPARTMENT
Pasadena police officers drive past the open private branch of Silicon Valley Bank in Pasadena, California on Monday, March 13, 2023. (AP Photo/Damian Dovarganes/AP Images)
Antoni explained that the bank “dealed almost exclusively with tech firms, which typically rely on continuously rolling up large debts,” meaning the firms “are not paying off their debts, they are simply taking on new debt to pay off the old ones “.
“Second, SVB has put a disproportionate amount of its cash in long-term bonds. It’s not a bad strategy normally, but it’s unwise when interest rates are zero because eventually those rates have to go up,” Antoni said. “When interest rates rise, bond prices fall. That’s because an investor given the choice of buying an existing bond at a low interest rate or a new bond at a high interest rate will choose the new bond because it offers a better yield. If you want to sell the old bond with its lower interest rate, you have to be willing to sell it at a discount or nobody will buy it.”
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According to Antoni, SVB braced itself for failure by tying most of its deposits into bonds and having an undiversified clientele that all needed their money at the same time.
“SVB had to sell its bonds at a loss to raise money,” Antoni said. “Restricted transactions like this would not have been catastrophic, but occur regularly on a small scale in the financial sector.”
“The SVB was a case of mismanagement made possible by the unrealistically low rates of the federal reserve‘ Antoni told FOX Business.
Andrew Miller of FOX Business contributed to this report.
