Democrats focus on capital rules after bank failures

WASHINGTON — Democratic lawmakers and officials are beginning to zero in on capital rules as needed adjustments to banking regulatory policy after the failures of Silicon Valley Bank and Signature Bank, blaming Republicans for their role in pushing for looser oversight in recent years. 

While lawmakers and President Joe Biden are limited in what they can accomplish in Congress since Republicans control the House, they’re nonetheless turning on the political heat over the banking industry’s and Republicans’ efforts to loosen capital rules around banks in the $100 billion to $250 billion asset range. Thursday’s letter is indicative of the political mudslinging expected around the banking industry in the lead up to the 2024 presidential elections. 

In a letter to Federal Reserve Vice Chair for Supervision Michael Barr, Federal Deposit Insurance Corp. Chairman Martin Gruenberg and Acting Comptroller of the Currency Michael Hsu, Democratic senators asked the regulators to follow through with establishing “strong” capital requirements for banks by aligning with the Basel III framework. 

The lawmakers, who included Sens. Elizabeth Warren, D-Mass., Richard Blumenthal, D-Conn., and Tammy Duckworth, D-Ill., said that banking industry lobbyists are trying to claim negligence on the part of regulators, notably the Fed, and maintain that more rules aren’t needed. 

“These industry officials are right that bank regulators’ failures are a key part of the reason that Signature and SVB failed — but this does not obviate the need for strong capital requirements,” the lawmakers wrote. “You must resist this industry spin and continue their long-overdue work to implement strong capital standards that keep our financial system safe.” 

The senators also criticized a push by Republicans to lobby for weakened capital requirements just prior to Silicon Valley Bank’s collapse. In the letter, dated March 3, a group of Republicans led by Senate Banking Committee ranking member Sen. Tim Scott, R-S.C., wrote to Fed Chairman Jerome Powell that increasing capital standards “appears unfounded as banks subject to the current regulatory capital regime seem to have weathered the real-life stress test of the COVID-19 pandemic well.” 

“The failures of SVB and Signature, and the regulatory and supervisory failures that enabled its costly collapse, are directly tied to the big banks’ and Republican policymakers’ cynical efforts to weaken our regulatory framework,” the Democratic senators said. “In order to prevent future bank crises and protect working Americans, we urge your agencies to quickly implement strong capital requirements and resist industry pressure to weaken or delay these requirements.”

The call for bank regulators to strengthen capital requirements comes at the same time as a lengthy speech from Treasury Secretary Janet Yellen, who called for more regulation and finishing parts of Dodd-Frank that have languished as banks appeared to be doing well in the last few years. 

“During the COVID pandemic and again this month, the proverbial fire department had to be called — in the form of interventions by the Fed, FDIC and Treasury,” Yellen said. “These events remind us of the urgent need to complete unfinished business: to finalize post-crisis reforms, consider whether deregulation may have gone too far and repair the cracks in the regulatory perimeter that the recent shocks have revealed.” 

Yellen said that the largest banks, at least, are better capitalized and more liquid than they were in 2007. 

“But the failures of two regional banks this month demonstrate that our business is unfinished,” she said.

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