The White House is preparing to ask federal banking regulators to impose new rules on midsize banks sparked by the collapse of Silicon Valley Bank earlier this month, according to two people with knowledge of internal discussions. However, it seems unlikely that the administration will ask Congress to reverse a deregulation law passed with bipartisan support five years ago anytime soon.
President Biden is expected to seek tighter regulations as part of his response to the SVB and Signature Bank crises, which prompted the government to secure billions of dollars in deposits at both banks, which were uninsured because they hit the $250,000 limit for federal protection had exceeded. The new regulatory measures would have to be implemented separately by the Federal Reserve, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. Biden aides will craft the plan as needed to prevent similar bank emergencies — and similar federal interventions — in the future, said the people, who spoke on condition of anonymity to describe plans that have not yet been released.
The exact details of the White House recommendations aren’t clear, but they will seek to restore rules for banks between $100 billion and $250 billion that were deregulated by Congress and the Fed during the Trump administration, the people said . Among the measures White House advisers have discussed are imposing higher capital requirements on banks, meaning they would have to hold a larger proportion of safe assets relative to their riskier loans; requiring them to have larger reserves of cash on hand; and tasking them with formulating plans for an orderly dissolution in the event of a crisis, people said. Banks would also have to undergo more frequent “stress tests” by federal agencies that assess their financial health.
People familiar with the deliberations said discussions are still in flux and could change before the White House’s plans are finalized.
A White House spokesman declined to comment.
The emerging proposal reflects the Biden administration’s determination to deflect criticism that its decision to prop up deposits from major Silicon Valley companies amounts to a bailout for the powerful and politically connected. Biden and Treasury Secretary Janet L. Yellen have repeatedly stressed that since the Federal Deposit Insurance Corporation’s insurance fund is paid for by fees billed to banks, taxpayers will not be on the hook to protect those deposits.
But Republicans have attacked the government for intervening on behalf of California corporations. Democrats, in turn, have tried to highlight the GOP’s opposition to stricter rules on banks as a possible factor in the crisis.
Whether the recommendations are implemented is at the discretion of the Fed, which is independent of the White House. Senior officials from the Fed, Treasury Department and the Federal Deposit Insurance Corporation said at a Senate hearing on Tuesday that they support strengthening rules for banks with more than $100 billion in assets. Both SVB and Signature Bank had more than that in assets when they failed.
Biden has also already urged Congress to pass legislation that would allow regulators to reclaim executive bonuses and proceeds from stock sales from SVB officers — a measure lawmakers seemed open to during a hearing on Tuesday.
“The White House can’t tell you what to do, but you can ask very nicely,” said Todd Phillips, a fellow at the Roosevelt Institute and former FDIC attorney. “Silicon Valley shouldn’t be stress tested under the Fed’s bespoke regulations until 2024 – that’s just crazy for a bank of this size.”
However, Biden is not expected to ask Congress to repeal the 2018 Banking Act, which rolled back many regulations. This law required the Fed to remove regulations for banks under $100 billion while allowing it discretion in handling regulation for banks with assets between $100 billion and $250 billion. In 2019, the Fed eased restrictions on these banks.
A return to a fight over this bill could fragment the Democratic Party and spark a fight that the White House may wish to avoid given the support of many centrist Democrats for the 2018 measure. Twelve Democratic senators have also written to the Fed, urging it to also tighten rules for banks with assets between $100 billion and $250 billion, though their determination would not result in repealing the legislation entirely either.
Republicans are also expected to resist any pressure for more oversight of mid-sized banks, arguing that the extra scrutiny could slow economic growth.
“I don’t think we’re doing the banking industry a disservice going forward by talking about, ‘Now we just have to rein in the small banks,'” Sen. Thom Tillis (RN.C.) said at a hearing on Tuesday.
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The Washington Post’s Rachel Siegel contributed to this report.
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