Trump rollbacks not to blame for SVB failure, FDIC VP says

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Dive Brief: The rollback of banking regulations after 2008 during the Trump presidency did not contribute to the failure of Silicon Valley banks last month, a senior Federal Deposit Insurance Corp official said Wednesday. at a Bipartisan Policy Center event in Washington. FDIC Vice Chairman Travis Hill, a former Republican Senate staffer, pushed back against growing calls from some progressive lawmakers that lax regulations, stemming from Trump-era setbacks, have led to the collapse of banks. The mismanagement of interest rate risk was at the heart of the SVB problem, Hill said, urging policymakers to propose changes based on the obvious shortcomings of our framework, rather than simply trying to undo the policies of the pass. Overview of the dive:

The collapse of several regional banks last month sparked an ongoing debate among lawmakers and regulators about what led to the failures and whether tougher regulations are needed to prevent future banking crises.

Some Democratic lawmakers and the White House have pointed the finger at S. 2155, bipartisan legislation signed by former President Donald Trump in 2018 that eased regulatory oversight of midsize lenders like SVB and Signature Bank, another firm that s collapsed last month.

Hill, however, said the effort to blame the SVB’s failure on S. 2155 highlighted a Washington tendency to criticize and blame first, and learn and understand later.

I think it’s pretty obvious that S. 2155 had nothing to do with [the collapse]said Hill, one of two Republicans on the FDIC’s five-member board. The rule changes didn’t change the stringency of capital standards for an SVB-sized bank, the stress tests didn’t test rapidly rising rates, and the exact thing that put the SVB struggling to invest in government bonds is exactly what the liquidity coverage ratio is. designed to demand. The reasons for the failure of SVBs are quite simple and easy to explain, and these rule changes have nothing to do with them.

Hill said SVB failed to keep tabs on interest rate risk and asset liability management. Banks were slow to try to fix the problems in early March, selling securities at a loss and raising capital to fill the hole, scaring off depositors, leading to bank runs and the subsequent FDIC takeover, it said. -he declares.

There are many ways to encourage banks to better manage interest rate risk, Hill said. We must carefully assess any potential policy changes and, in trying to resolve the issues of March 2023, remain aware of the impact of any policy changes on the majority of banks in most cases.

Regulators should look closely at lessons learned from recent failures and be open to targeted changes to the framework, he said.

“But we need to be humble about what our rules and policies can accomplish and avoid the temptation to over-correct,” Hill added.

Last month, Raleigh, North Carolina-based First Citizens agreed to buy $110 billion in SVB assets, $56.5 billion in deposits and $72 billion in loans as part of a a deal that would leave $90 billion of securities and other assets in FDIC escrow.

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