The US President reacts to the collapse of the Silicon Valley Bank.
(Photo: AP)
Denver In view of the banking turmoil in the USA, US President Joe Biden wants stricter conditions for financial institutions and thus a reversal of the relaxations offered by his predecessor Donald Trump. Biden is therefore calling on the bank supervisory authorities, among other things, to increase the liquidity requirements for smaller banks, the White House announced on Thursday.
The focus should be on medium-sized banks with total assets of 100 to 250 billion dollars. These institutes should also have to undergo annual stress tests again. The regulators should also examine the interest rate risks of the banks more closely in the future.
In this way, Biden wants to ensure that the banks have enough capital to absorb potential losses. In addition, the financial institutions should submit comprehensive resolution plans. These are intended to show that the banks would not endanger the banking system as a whole in the event of resolution.
“I want to emphasize that today’s announcement focuses on actions that can be implemented under existing law,” a US government official said. It does not require the approval of the US Congress. However, it is ultimately up to the responsible regulatory authorities to implement the changes. Government representatives have spoken to the heads of authorities in the past few days. The government representative did not say how receptive they were to the proposals. “We believe that the situation has stabilized significantly,” the representative continued. However, it is important that measures are taken to prevent future banking crises.
The trigger for the banking crisis at the beginning of March was the liquidation of the US financial group Silvergate Capital, which is geared towards the crypto industry. A few days later, the US money house Silicon Valley Bank, which specializes in start-up financing, was placed under the control of the US deposit insurance company FDIC and closed. There had been a bank run. It has since emerged that the bank had had years of trouble with its primary regulator, the San Francisco regional Fed, and had failed in its risk management.
Sharp criticism from the banks
With his statements, the US President provoked a dispute with the banking lobby. “It would be unfortunate if the answer to poor management and oversight at the SVB was additional regulation for all banks,” said Greg Baer, executive director of the Bank Policy Institute, which represents large financial houses.
The Fed and the FDIC have only just begun their comprehensive investigations, which are due to be presented on May 1st. The government is therefore giving the impression with its advance that it wants to “shoot first and then think about the exact target”.
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In 2018, the US Congress cleared the way for a repeal of essential parts of the so-called Dodd-Frank Act, which was intended to prevent renewed bank failures after the 2008 financial crisis at the expense of taxpayers. Trump had promised the financial lobby to roll back the rules passed in 2010. While that didn’t happen entirely, conditions were eased for small and regional banks – which are now struggling.
US Treasury Secretary Janet Yellen also spoke out in favor of stricter regulations on Thursday. She left details largely open, but also called for stricter rules for the crypto industry and for important players in the so-called shadow banking system. These include money market funds, which have recently gained significant popularity, and hedge funds.
The bankruptcy of two regional banks in March shows “that our work is not yet finished,” Yellen said at an economists’ conference. “Regulation costs businesses just like fire regulations cost property owners. But the cost of proper regulation pales in comparison to the tragic cost of financial crises.”
With agency material.
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