Biden pressures US regulators to toughen bank rules

The White House is urging bank overseers to get stricter with regional lenders, outlining a series of steps it wants in the wake of the Silicon Valley Bank meltdown.

Senator on banks: This is not 2008

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Fri, March 31, 2023, 3:33 AM GMT+9·4 min read

President Biden is asking federal banking regulators to tighten some of the rules loosened at the end of last decade for regional banks, forcing institutions the size of the failed Silicon Valley Bank to hold more liquid assets while undergoing more frequent stress tests.

The steps outlined by the White House Thursday don't require new legislation and can be imposed by regulators that currently oversee the nation’s banks, including the Federal Reserve. The Fed is currently reviewing what changes it can make on its own; its bank regulation chief, Michael Barr, told lawmakers Tuesday he does see a "need" for stronger liquidity and capital requirements.

One Republican lawmaker said the Fed already has the power to hold banks like Silicon Valley Bank accountable and it failed to do so. “Instead of giving more authority to regulators who were asleep at the wheel before these bank failures, we should hold them accountable for their inability to utilize their existing supervisory tools,” said Patrick McHenry, chair of the House Financial Services Committee.

The oversight of regional banks was first loosened in 2018 during the Trump administration with a bipartisan bill that re-defined which banks were deemed "systemically important" to those holding at least $250 billion in assets instead of $50 billion, undoing some of the strictest requirements imposed by Congress following the 2008 financial crisis.

That legislation also gave the Fed the power to tailor those rules, which it did along with other regulators in 2019. Current Fed Chair Jerome Powell was in charge of the Fed at the time. Some federal officials, including current Federal Deposit Insurance Corporation Chair Martin Gruenberg, objected to the revisions.

One key 2019 measure now receiving a lot of attention was the Fed’s decision to exempt banks with $100-$250 billion in assets from maintaining a standardized “liquidity coverage ratio.” The ratio is designed to show whether a lender has enough high-quality liquid assets to survive a crisis. A lack of liquidity turned out to be a major problem for Silicon Valley Bank as deposits left the bank and the value of its assets declined as interest rates rose. The $209 billion institution was seized by regulators on March 10.