President Joe Biden wants to repeal the bank deregulation bill passed under former President Donald Trump, but without repealing the law.
In 2018, Congress relaxed the rules put in place in response to the financial crisis a decade earlier — though explicit warning that doing so will increase the risk of bank failure. Now that two banks have failed, prompting dramatic government intervention to save the banks’ depositors, the White House wants regulators to put the rules back in place without action from a divided Democratic Party or an even more divided Congress.
“I don’t want today’s action to mean that no congressional action is necessary,” White House officials told reporters on a conference call Thursday.
Major congressional action in response to the banking crisis appears unlikely. While Sen. Elizabeth Warren (D-Mass.) and other progressives would prefer to repeal the 2018 deregulation entirely, dozens of Democrats who support the legislation generally brushed aside the idea of responsibility for the collapse of Signature Bank or Silicon Valley Bank. And Republicans continue their strict opposition on banking regulation.
Officials said on Thursday that Biden plans to urge bank regulators like the Federal Reserve and the Federal Deposit Insurance Corporation to implement “enhanced prudential standards” that lawmakers made optional for mid-sized banks in 2018.
The law says that stricter supervision imposed in 2010 by the Dodd-Frank Wall Street reform – including liquidity requirements, stress tests and requiring banks to hire a chief risk officer – is only mandatory for banks with more assets of $250 billion, instead of $50 billion as previously required. But the law allows regulators to maintain those standards, at their own discretion, at banks with more than $100 billion in assets deemed risky.
The authors of the 2018 rollback, who include Democrats and Republicans, say the law should not be blamed for recent bank failures because the law gives regulators the option to keep stricter rules in place. By the same token, regulators can make tougher standards mandatory for all banks now if they think it would be a good idea.
“There is substantial discretion under the act for the Federal Reserve to adopt a knitting rule that is different from the knitting rule that is being implemented,” Federal Reserve Vice Chairman Michael Barr told lawmakers this week. “I think there is still, until now, an important policy to change by making rules and commenting.”
Warren says regulators must act — but Congress must too.
“We have to do both,” he told HuffPost. “We need the Fed to step up and start monitoring these banks, right away. But Congress also needs to lock the doors that have been opened by allowing the Fed to undermine these regulations.
There is one piece of legislation that could be passed in response to the banking crisis. Warren and Sen. Josh Hawley (R-Mo.) have introduced legislation to give the government the power to claw back bonuses from executives in failed banks, and to prevent the banking industry in the future. But it’s unclear whether Senate Majority Leader Chuck Schumer (DN.Y.) or House Speaker Kevin McCarthy (R-Calif.) will prioritize the legislation.
Igor Bobic contributed reporting.