Dodd-Frank banking regulations were rolled back under Trump

On March 10, federal regulators shut down Silicon Valley Bank after many depositors rushed to withdraw their funds at once.

The federal takeover noted the second largest bankruptcy following the collapse of Washington Mutual during the 2008 financial crisis. Two days after Silicon Valley Bank failed, regulators seized Signature Bank in New York.

In the days after the bank collapse, people onlineincluding Senator Elizabeth Warren (Massachusetts), claimed that former President Donald Trump had “rolled back” regulations for banks. President Joe Biden also addressed the proposed repeal of the rules during a speech on March 13.

“During the Obama and Biden administrations, we put tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank Act, to make sure the crisis we saw in 2008 doesn’t happen again,” Biden said. . “Unfortunately, the last administration rolled back some of those requirements.”

Were banking regulations rolled back during the Trump administration?

Yes, banking regulations were rolled back during the Trump administration. But it’s hard to say whether stricter requirements would have prevented the collapse of Silicon Valley and Signature Banks.

In May 2018, former President Donald Trump signed a law to repeal tougher requirements for banks like SVB that were put in place nearly eight years ago.

In 2010, Congress passed Dodd-Frank Act during the administration of former President Barack Obama. The legislation was aimed at “preventing excessive risk-taking” that led to the 2008 financial crisis, the Obama White House said at the time.

The Dodd-Frank Act imposed certain requirements on “systemically important financial institutions (SIFIs),” or banks with at least $50 billion in assets.

In 2018, Trump signed Law on Economic Growth, Regulation and Protection of Consumer Rights into a law that raised that threshold to $250 billion. But it gave the Federal Reserve the ability to apply tougher requirements to banks with at least $100 billion in assets.

The requirements set forth in the Dodd-Frank Act included annual “stress tests” conducted by the Federal Reserve, expanded capital and liquidity standards and a “will” detailing the bank’s resolution plan in the event of bankruptcy, according to the 2013 Government Accountability Report (GAO).

A “stress test” is a simulation or analysis performed to assess how a bank will be affected by adverse market conditions, such as a market crash or recession, The Institute of Corporate Finance explains.

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“The justification for the rollback in 2018 was this [the regulations] have put a burden on these smaller institutions, and by removing that, they will be able to perform their functions better,” said David Ely, a finance professor at San Diego State University.

Silicon Valley Bank, whose assets at the end of 2022 amounted to 209 billion dollarswould automatically be subject to stricter Dodd-Frank rules if the 2018 threshold were still in place, Ely said.

This also applies to Signature Bank, which had just over $110 billion in assets at the end of 2022.

In the wake of recent bank failures, U.S. Representative Cathy Porter (D-California), Senator Warren and other lawmakers introduced legislation roll back tougher Dodd-Frank regulations. But it is difficult to say whether these requirements would have prevented the collapse of the bank.

“I think the root causes of their collapse were more due to some poor management decisions and maybe some red flags that were not seen in the ground rules of the institution,” Ely said.

Silicon Valley Bank there were many investments in long-term government bonds and mortgage-backed securities, which plummeted in value when the Fed raised interest rates. Both Silicon Valley and Signature banks also had large deposits that were not insured by the federal government, making them “more vulnerable to bank raids,” said Jay Hatfield, CEO of Infrastructure Capital Advisors. said VERIFY.

The Associated Press contributed to this report.