The US Federal Reserve is reviewing capital and liquidity requirements for banks with assets between $100 billion and $250 billion following the abrupt and speedy collapse of Silicon Valley Bank last week.
Fed Reviews Regulatory Requirements for Mid-Sized American Banks
As reported by the Financial Times, the Fed is considering bringing about strict regulations for banks falling in that category. Additionally, the US central bank assesses the stress test it carries out for banks to check their ability to endure adverse economic and financial scenarios.
The consideration to revise the existing rules came as the Fed is facing a backlash for its role in scrutinizing the risks of the collapsed Silicon Valley Bank.
The US Congress rolled back portions of the Dodd-Frank Act in 2018 for mid-sized banks, which became the most significant deregulation after the 2008 banking industry collapse. The legislation only kept the toughest regulatory requirements for banks with assets of more than $250 billion, and the Fed approved lighter regulations for all mid-sized banks in 2019.
Whoa! Here it is. The moment in 2018 when Donald Trump removed the Dodd-Frank regulations that would have prevented the Silicon Valley Bank collapse. Don’t let anyone forget this. pic.twitter.com/3ccLFMWH2o
— MeidasTouch (@MeidasTouch) March 12, 2023
Silicon Valley Bank escaped the country's most brutal banking regulatory scrutiny as it held $212 billion in assets by the end of 2022.
Now, many Democratic lawmakers in the US rallied behind a bill on Tuesday to repeal the 2018 rollbacks of the Dodd-Frank Act.
"In 2018, I rang the alarm bell about what would happen if Congress rolled back critical Dodd-Frank protections: banks would load up on risk to boost their profits and collapse, threatening our entire economy — and that is precisely what happened," said Senator Elizabeth Warren.
During the Obama-Biden administration, we put 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.
— Joe Biden (@JoeBiden) March 14, 2023
The last administration rolled back some of these requirements.
Protecting the Depositors
The Fed, the Treasury Department, and the Federal Deposit Insurance Corporation announced emergency measures to protect Silicon Valley Bank's depositors and Signature Bank, which the New York regulators shuttered on Sunday.
The federal regulators created a new lending facility to give insured and uninsured customers of the collapsed banks access to their deposits. However, regulatory experts argue that the Silicon Valley Bank's collapse could have been avoided if the relaxations on the Dodd-Frank Act were not given.
In addition, the UK subsidiary of the Silicon Valley Bank collapsed but has now been acquired by the local HSBC arm for a symbolic £1. Moreover, the UK's financial market regulator confirmed that the SVB UK would maintain its authorization for normal operations.
Meanwhile, the US Justice Department and the Securities and Exchange Commission are probing into any possible violation of the stock trading rules by the executives of SVB. On top of that, Signature Bank reported facing a criminal investigation for any possible anti-money laundering lapses before it collapsed.
The collapse of the SVB, Signature, and Silvergate Bank, which went into voluntary liquidation rather than FIDC receivership, dented the operations of many crypto companies as they had massive exposure to these banks. However, the overall cryptocurrency market benefitted.
Bitcoin rallied more than 10 percent in the last 48 hours to cross $25,000, only to face resistance and slip from that mark. Furthermore, the total cryptocurrency market cap went over $1.08 trillion, as of press time, according to Coinmarketcap.
