On their first day back in Washington since the public and the Federal Deposit Insurance Corp. reaped what Congress sowed in 2018, senators who supported a controversial rollback of banking regulations warned that it was far too early to say what precisely caused the collapse of Silicon Valley Bank, but wanted it known that they were all trying to find the guy who did this.
“I think that we need to see what has actually transpired and understand what has transpired, then make a judgment going forward so we’re not just looking backward, but we’re also looking prospectively, so we can make sure the American banking system is sound and that people don’t color outside the lines in ways that’s destructive to them or to the broader banking industry,” said Sen. Michael Bennet of Colorado, when asked if he regretted his vote in favor of the 2018 deregulation bill.
“Whatever he’s saying is probably true,” added Sen. Angus King of Maine — a fellow yes vote on the 2018 bill — while passing Bennet in the Senate basement. Pressed further, King said that life is full of tradeoffs. “It wasn’t a zero sum.” he said. And still, it’s not as if there were no regulations.
“They still had stress tests, they still had liquidity requirements,” King continued. “The question is what happened. And it’s a fair question. Let’s pursue it. Would I vote the same way? Yes, because of the important help to smaller banks and community banks. That was my mission, that was what I was working on. The others were focused on the $250 [billion], and that was part of the compromise that got us the aid for the smaller banks.”
Delaware Sen. Chris Coons — who managed to evade two earlier attempts at comment from The Intercept — demurred when asked how he could defend his 2018 yes vote given what we know about Silicon Valley Bank today. “And just what is that?” Coons shot back, pausing for effect. “Exactly,” he added, just as the elevator doors closed.
Senate Bill 2155 — which Coons, King, and Bennet all voted for— curbed parts of the Dodd-Frank Act that forced banks to lend responsibly, hold adequate cash on hand, and conduct stress tests to ensure the liquidity required to prevent a run. Silicon Valley Bank lobbied extensively for the scale-back and successfully managed to lift the threshold for oversight measures from banks holding over $50 billion in assets to banks holding over $250 billion.
In a 2017 interview on Fox Business Network, Silicon Valley Bank CEO Greg Becker told Iowa Sen. Chuck Grassley that even though SVB was seeing healthy year-over-year growth, deregulation would make their client portfolio even stronger. “Our loan growth over the last five, six, seven years, we’ve been averaging roughly 20 percent plus per year. So we really haven’t slowed down, and that’s both in the commercial side, as well as in our private banking side. It’s really about what — how do you continue to stimulate that growth on a go-forward basis, both domestically and globally? I believe that keeping the threshold where it is actually would hurt us. Therefore, moving it up, we expect to see benefits and more — invest more in the business.”
Becker personally wrote to the Senate to ease oversight of banks the size of SVB and hired former staffers of House Speaker Kevin McCarthy to lobby both the U.S. House and the FDIC on weakening federal banking oversight.
“I’ve never heard of you,” Utah Sen. Mitt Romney told The Intercept, making his way to the Senate chamber for a vote.
When pressed on the connection between Dodd-Frank rollbacks and the current banking crisis, Romney said, “You have to talk to one of the bank regulators to get that perspective. There will be plenty of time to do analysis to figure out what happened with the decline at SVB, and of course we should have gotten a heads up earlier than we did.”
“But I think the FDIC and Fed took the correct action to stabilize regional banks all over the country,” Romney added. “We had over 100 businesses in my state alone that had a substantial portion of the banking relationships with them or with other regional banks. My staff and I got many, many calls from employers that were afraid that they could meet payroll if regional banks had a run on them. The system was stabilized and now we have plenty of time to look back and say what can we do in the future.”
His comments came just hours before Credit Suisse saw its shares decline by nearly 20 percent, bolstering fears that Silicon Valley Bank’s collapse may lead to widespread financial instability across global markets.
The bailout first, ask questions later strategy put forth by the senators who voted for S.2155 did not sit well with all members of the GOP caucus. Sen. Josh Hawley of Missouri diverged from the opinion of his colleagues and said that while he wasn’t in the Senate for the 2018 vote, now was not the time for a federal bailout.
“Taxpayers should not be bailing out, and customers in Missouri shouldn’t be bailing out tech billionaires in California,” Hawley said. “And don’t make any mistake about ‘special assessments on banks to pay for this.’ They’ll pass that right onto consumers. This is a federal bailout.”
“I promise you,” he added, “if a Missouri community bank failed, all we would get is the ‘Oh its creative destruction, its the market.’ When it’s a California bank with tech billionaires? Then it’s ‘systemic risk.’ Give me a break.”
Overhearing Hawley, Sen. J.D. Vance of Ohio concurred. While descending post-vote in one of the elevators reserved exclusively for senators and their guests, he added that “nobody has asked any tough questions about the San Francisco Federal Reserve. I’m really interested why they didn’t see this coming given how obviously terrible SVB’s balance sheet was.” Becker, who previously served as a Class A director at the San Francisco Fed, stepped down on the same day federal regulators closed his bank.
Sen. Rand Paul of Kentucky mirrored Hawley’s sentiment. As he fussed with his keys in the Russell Senate Office Building, Paul said, “In a just world [Silicon Valley Bank] should be punished for it by losing all of their money and instead they are going to reward people for all these bad decisions,” before rapidly closing his office door.
Earlier this week, Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., vowed to revive the Dodd-Frank rules gutted under President Donald Trump. “In 2018, I rang the alarm bell about what would happen if Congress rolled back critical Dodd-Frank protections: banks would load up on risk to boost their profits and collapse, threatening our entire economy,” Warren wrote in a statement, “and that is precisely what happened.”
As senators left the Hill on Tuesday night, they were greeted by a Monopoly man holding balloons in the shape of 2155, the Senate bill from 2018. “Happy birthday to Senate Bill 2155,” one man shouted as Sen. Joe Manchin drove away.