“During the Obama-Biden administration, we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank Law, to make sure the crisis we saw in 2008 would not happen again.
Unfortunately, the last administration rolled back some of these requirements.
I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure will happen again and to protect American jobs and small businesses,” this was announced by Joe Biden (President of the United States of America) yesterday as part of his remarks on maintaining a resilient banking system and protecting US historic economic recovery.
Financial SMEs exemption for the Dodd-Frank solvency requirements, the main reason for SVB and SB fall outs
The Trump reform of the Dodd-Frank Law maintained at around the 90% of the controls that the Obama-Biden Administration approved with the aim of avoiding an economic cataclysm such as the one generated by Lehman Brothers’ abuse of the subprime credits that led to the real estate bubble burst in 2007.
The Trump reform continued reserving to the Federal Government the power to close banks in difficulties, for example.
The Obama-Biden regulation on control and guarantee of bank solvency remained unchanged for the large North American financial entities (around 38).
The legal changes introduced by the Economic Growth, Regulatory Relief and Consumer Protection Act mainly affected small and medium-sized banks, which became exempted from the obligation to allocate reserves annually at a certain level to guarantee their solvency or from the obligation to pass annual stress tests carried out by the Federal Reserve.
Under the Dodd-Frank rules, banks with $50Bn in assets were subject to more extrict capital and liquidity requirements, but the new law in 2018 increased to $250 Bn the asset threshold for a financial entity to be subject to feed yearly its cash reserves to the level marked by the Financial Stability Oversight Council.
This change made by Trump Administration’s Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018 relaxed the regulations for smaller and medium-sized banks.
Trump’s reform of the Dodd-Frank law exempted as well lenders with assets of less than $10 Bn from the requirements of the Volcker Rule and imposed less stringent reporting and capital norms on small lenders.
Image over the headline.- Joe Biden (President of the USA) explains measures that the Government has taken to avoid contagion of SVB an SB fall outs. Capture image of the video of his intervention (a link with the video is added at the end of this post).
Related Eastwind links (Spanish edition):
Silicon Valley Bank and Signature Bank fall outs.- Europe, little to fear says the Eurogroup; SVB’s Chinese j-v has its own problems and HSBC buys the SVB’s British subsidiary
Related external links:
Joe Biden remarks on maintaining a resilient banking system and protecting US historic economic recovery (video)
The Dodd-Frank Law (easy video explanation)