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President Biden has proposed a set of reforms he believes would strengthen banking regulations and avert future crises.
US President Joe Biden has called for stricter banking regulations in the aftermath of the Silicon Valley Bank-triggered crisis. Biden implored federal regulators to devise concrete means to protect the country’s banking system. The President’s office also pointed out that these safeguard reforms are accomplishable under existing law.
According to the White House, Biden’s proposals dovetail with his recent efforts to consolidate banking regulations to avert a reoccurrence. The President’s administration wants regulators to protect banks with assets ranging from $100 billion to $250 billion. Furthermore, Biden pushes for enhanced supervision and regulatory scrutiny over financial institutions.
Details of Proposed Biden Banking Regulation Reform
The US President’s proposed reforms include increasing liquidity requirements and the frequency of stress tests for mid-sized banks. Biden also wants banks to develop failsafe contingency plans that would limit stress on the financial system should these banks fail. Additionally, the presidency seeks to limit the banks obligated to contribute to replenishing the Deposit Insurance Fund (DIF). It is worth noting that the government resorted to the DIF as a recourse to bailing out Silicon Valley Bank’s uninsured depositors.
The banking regulation reform sponsored by Biden comes amid the US President’s plan to seek $9.5 billion from Congress to promote democracy. Several Democrats already align with the commander-in-chief’s call for new legislation or regulatory powers to secure the financial system. However, Republicans argue that the government already possesses the required power, under current law, to avert a future financial crisis.
Democrats and Republicans Butt Heads Over the Regulations
Although several of the White House-endorsed proposals are under consideration in Congress, it should be noted that Republicans control the House. The opposition party remains critical of the Biden government and regulations rather than banking executives. For instance, the House Financial Services Committee Chair, Rep. Patrick McHenry, accused the presidency of politicizing the banks’ failures. McHenry also doubted whether Biden’s proposed remedial efforts would have preempted the financial crisis. As the GOP lawmaker put it:
“As we heard from Biden’s own regulators at our hearing yesterday, supervisory incompetence was the leading cause of the failures. There is no evidence that the original Dodd-Frank would have prevented these bank runs.”
McHenry added that the recent stress tests could not address the current economic conditions that triggered the crisis. He said:
“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.”
Despite Republican cynicism, Democrats remain resolute in crafting new legislation, especially since SVB’s collapse. Party members in Congress have been agitating to penalize bank executives and hold them more accountable going forward.
On Wednesday, some Democratic senators, led by Sen. Elizabeth Warren, issued a letter to bank regulators asking for more robust capital requirements. The group also wants federal regulators to retrieve compensation earned by executives in the five-year period before a bank failure.