Sam Schwab

Associate Editor

Loyola University Chicago School of Law, JD 2024

The Biden Administration acted strongly last month in response to the recent collapses of Silicon Valley Bank (SVB) and Signature Bank. Each collapse sent shockwaves through the U.S. banking system and shook the confidence of consumers nationwide. The Biden Administration showed swift and steady leadership in urgently addressing the crisis. The President and leading Democrats in Congress continue to push for stronger regulatory oversight with respect to the banks. This shows that the Democrats are on the right side of the banking issue, as they have been for the 16 years following the 2008 financial crisis.

President Biden’s executive oversight

In the days after the collapses of SVB and Signature Bank, President Biden gave remarks to reassure Americans’ confidence in the banking system. Stating in part, “Thanks to the quick action of my administration over the past few days, Americans can have confidence that the banking system is safe”. The President assured that consumers’ deposits will be available when they are needed. That includes for business owners that need to cover payments such as employee payroll and rent. Importantly, the President assured consumers that the costs associated with insuring bank deposits would not be borne by the taxpayers. Instead, the costs will be covered by fees that banks will pay to the deposit insurance fund. These urgent needs could not be fulfilled without a strong showing from the Federal Deposit Insurance Corporation, or the F.D.I.C., which is the regulatory actor that has insured the deposits of American bank customers since its inception after the Great Depression.

The President made clear that those responsible for each collapse will be held accountable. Specifically, management of any bank that collapses and is taken over by the F.D.I.C. will be fired. Thirdly, it’s the Administration’s position that investors in a collapsed bank will not be protected, which was not the case in the wake of the 2008 financial crisis. President Biden emphasized that the investors took a risk, and that risk didn’t pay off, so investors lose their money. “That’s how capitalism works.” Lastly, the President called for a full accounting of what went wrong at SVB and Signature so that necessary reforms can be made, and those responsible are held accountable. Specifically, Congress must act to restore stronger regulations on the banking industry that were repealed by former President Trump’s administration. These actions laid out by the President are true examples of executive oversight in action.

In my view, President Biden’s response to the bank collapses was strong, steady, composed, and reassuring. It is another example of steady leadership that the Democratic administration has provided in a time of chaos. As progressive Democrat Senator Elizabeth Warren said on The Rachel Maddow Show, “boy am I glad that Joe Biden is President of the United States right now. He approached this in a way that is very calm, stayed right on top of it.” What is still missing is strong action from Congress to compel the agencies to promulgate rules requiring the banks adhere to a more strict regulatory framework. Senator Elizabeth Warren is the leading voice on strengthening banking regulations, and her guidance is invaluable in helping us as a nation determine which regulatory and legislative steps to take next.

Senator Warren’s regulatory and legislative call to action

Senator Warren is strong, progressive Democratic party leader when it comes to the handling of banking related concerns. Warren first became widely known to the American public for her leadership in the wake of the 2008 financial crisis. She was first appointed by then-Democratic Senate Majority Leader Harry Reid to chair the Congressional Oversight Panel, whose job it was to implement the Emergency Economic Stabilization Act, known as the “bank bailout act.” She was also an early advocate for the creation of the Consumer Financial Protection Bureau, which is a regulatory agency whose sole purpose is to regulate the financial sector to protect consumers. Warren also ran for President in 2020 and has served in the Senate since 2013.

In a New York Times op-ed, Senator Warren once again made the case for stronger banking industry regulations. Specifically, she highlighted a bill that was passed in 2018 and signed by President Trump that lifted restrictions put in place by the Dodd-Frank Act. At the time, she argued that the easing of the Dodd-Frank regulatory oversight would make it easier for banks to run up risk for the sake of short-term profits. Unfortunately, it turns out that she was right. SVB’s practices in particular were based largely on “They would also have been required to comply with routine regulatory stress tests. But because they were not required to comply with such regulation, S.V.B. collapsed from the pressures of a bank run.

Congress and the agencies must act to put in tougher rules on the banks

Senator Warren and President Biden have the same solution to the problem of instability in the U.S. banking industry: Congress must act and require agencies to promulgate stronger banking regulations. In tandem with the White House and banking regulators, the Democratic leaders agree that the Trump deregulation actions must be reversed. That means repealing the 2018 legislation which slashed the rules that banks like S.V.B. and Signature are required to follow. It also means that Congress must investigate exactly what types of practices led to the collapse of the two banks, a function of Congress known as regulatory oversight.

Democrats are leading the way on the issue of preserving strong banking and financial sector regulatory compliance requirements. In my view, the Democratic party is the party of fiscal responsibility because its leaders are advocating for stronger rules to make sure that the banks do not collapse. I must add, however, that the 2018 Trump regulation rollback passed with bipartisan support, with the help of moderate Democrats such as Arizona Senator Kyrsten Sinema, who has since changed her party affiliation to Independent. However, writ large, the Republicans seem to claim that they are the party of fiscal responsibility because they are eager to cut spending on social programs and welfare. In reality, when it comes to welfare for corporations and the banks, Republicans are all for it. I think it would be wise then to listen to Democrats like Senator Warren, who say that, from a regulatory compliance perspective, Washington must act quickly to prevent the next crisis.”