The US government accused former President Donald Trump (2017-2021) on Thursday of being responsible for the fall of the Silicon Valley and Signature banks since during his tenure he eliminated some of the entity supervision requirements.
“Unfortunately, the Trump Administration and its regulators have weakened many important sets of rules, requirements and supervision for large regional banks such as Silicon Valley Bank (SVB) and Signature Bank, whose recent bankruptcy led to the risk of contagion throughout the banking system.”, pointed out a White House source in a conversation with the media.
According to “independent experts” added“these setbacks during the previous Administration contributed to the recent bank failures.”
For this reason, he stated, US President Joe Biden has asked the federal banking agencies to consider a set of reforms to reduce the risk of future banking crises.
These reforms, he specified, can occur “under existing law” and “There is no need for congressional action to authorize agencies to take any of these steps.”.
“It’s really about making sure that we’re protecting the resilience and stability of the banking system going forward.”, he added.
In the opinion of that official source, in recent weeks “things have stabilized significantly” and “People should have confidence that their deposits will be there when they need them.”
But “we also believe it is important that regulators take action to ensure that future banking crises do not occur”, he added.
The White House specified through a statement that after the 2008 banking crisis, the Obama-Biden Administration implemented strict requirements, mainly through the Dodd-Frank Act, to reduce the risk of future banking crises.
Trump government regulators, however, “they weakened many important requirements”. Among them was removed the rule that required banks with less than $250 billion in assets to hold enough high-quality liquid assets to cover expected net outflows during a period of stress.
By the end of 2022, Silicon Valley Bank “was well below the liquidity threshold” which would have applied if the Trump Administration had not exempted the bank from those rules.
In addition, under Trump the requirement for banks of that size to undergo stress tests once or twice a year was removed.
“When Silicon Valley Bank failed, it had never undergone a comprehensive capital stress test even though it had more than $200 billion in assets.”, affirmed the White House.
Trump administration regulators also removed the requirement for bank holding companies between $100 billion and $250 billion to submit comprehensive resolution plans, believing that the failure of these banks would not threaten the financial system.
However, the bankruptcies of SVB and Signature Bank “they have now clearly shown that bank failures in this size range can pose a systemic risk.”
Hours after the fall of these entities was known, on March 12, the regulatory bodies of the United States launched a plan to protect the deposits of the SVB.
The Treasury Department, the Federal Reserve (Fed) and the Federal Deposit Insurance Corporation (FDIC) announced that customers would have access to all money deposited in these entities.
The Fed also launched a liquidity line for banks with financing difficulties in order to prevent mistrust from spreading to other entities and so that what happened did not bring about a deeper financial crisis.
At an event of the National Association for Business Economics, Secretary of the Treasury, Janet Yellen, also stated today that it is necessary to review the banking deregulation that has been carried out in her country in recent years.
“Regulatory requirements have been relaxed in recent years. I think it is appropriate to assess the impact of these deregulation decisions and take the necessary measures.“, he claimed.
Thus, he added, “it is important that we re-examine whether our current supervisory and regulatory regimes are adequate for the risks banks face today and we must act to address these risks if necessary.”
Source: EFE
Source: Gestion
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