After the collapse of two large regional banks, Silicon Valley Bank and Signature Bank, the Biden administration has proposed new measures to strengthen the banking system and reduce the risk of future crises. President Biden’s regulatory push aims to restore regulations rolled back during the Trump administration and protect the stability and resilience of the financial system.
Proposals to Strengthen Oversight and Regulation of Larger Banks
President Biden’s proposals include strengthening oversight and regulation of larger banks to prevent similar collapses from happening again. The reforms involve raising liquidity requirements, updating liquidity stress tests to account for digital withdrawals and social media, increasing stress test frequency, requiring mid-sized banks to submit plans for closing down in case of failure, updating stress tests to account for novel situations, and limiting which banks must contribute to replenishing Deposit Insurance Fund.
The White House states that all proposed reforms can be accomplished under existing law, while bank regulators have testified that some proposals are already under consideration. Members of Congress have introduced several bills aimed at penalizing bank executives and stabilizing the financial system. Democratic senators, led by Sen. Elizabeth Warren, have sent a letter to bank regulators demanding stronger bank capital requirements.
Regulatory Push for Large Regional Banks
The Biden administration is calling for changes in oversight on large regional banks to prevent future banking crises. The recent collapse of Silicon Valley Bank and Signature Bank has raised market concerns about industry-wide contagion. The President wants federal banking regulators to re-institute rules rolled back in the previous administration for banks with assets between $100 billion and $250 billion.
The rules include liquidity requirements, annual supervisory capital stress test requirements, mandating comprehensive resolution plans, and strong capital requirements for banks. The President also wants to expand long-term debt requirements for a broader range of banks and ensure community banks are not burdened with the costs of replenishing the Deposit Insurance Fund after recent bank failures.
Measures to Strengthen Mid-Sized Banks
The Biden administration is also proposing new measures to strengthen mid-sized banks. These measures can be carried out without needing to go through Congress. Banks with $100 billion-$250 billion in assets should hold more liquid assets, increase their capital, undergo regular stress tests, and create “living wills.” Partially reinstating rules rolled back under former President Donald Trump’s administration would affect fewer than two dozen firms out of a total of over 4,000 FDIC-insured US banks.
About 30 banks had assets of over $100 billion at the end of last year, and nearly half were already subject to tougher scrutiny. The Federal Reserve’s top regulator criticized Silicon Valley Bank for poor risk management, while both Republicans and Democrats criticized regulators and the agency for lax oversight.
The Fed and other bank regulators are already looking to strengthen bank rules, particularly for firms between $100 billion and $250 billion in assets. Some Democrats, including Senator Elizabeth Warren, have called for the complete repeal of the 2018 changes, but analysts consider this unlikely in a divided Congress.
Senior administration officials have been in close touch with regulators about the proposed changes, but timing of any action is up to the independent agencies. The Bank Policy Institute, representing leading American banks and their customers, expressed disappointment in the Biden administration’s regulatory push, while Better Markets, a nonpartisan organization, applauded the new efforts.
Overall, the recent banking collapses have highlighted the need for stronger regulation and oversight in the financial system. President Biden’s proposals aim to protect the stability and resilience of the banking system while addressing concerns about industry-wide contagion and reducing the risk of future crises. It remains to be seen how these proposals will be implemented and whether they will be effective in preventing future collapses.
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