As fallout from the March Silicon Valley Bank collapse continues to ripple through the financial sector, many industry experts and politicians are pointing to one of the likely root causes — the 2018 rollback of the Dodd-Frank law put in place during the Great Recession, which provided stricter regulation of mid-sized banks.
Then-President Donald Trump pushed a plan to shred key oversight provisions in the law, and 17 Democratic senators including Michigan’s Debbie Stabenow and Gary Peters joined him. Metro Times noted in 2018 Peters defended the move, telling us “Michigan credit unions and community banks stepped up and helped keep Michigan families afloat during the financial crisis by offering credit when big banks wouldn’t.”
Stabenow called the regulations “unnecessary.”
“Our member-owned credit unions and community banks — who did not cause the crisis — are vital to small businesses and families,” she added.
Five years later, SVB, a mid-sized bank that did not cause the Great Recession and pushed for the Trump rollbacks, fell and sparked a crisis. It had nearly quadrupled in size after the rollback, and inflation quickly devalued its assets, igniting a run on the bank in which SVB customers withdrew $42 billion in one day.
Other teetering banks were taken over by the government, and soon Switzerland’s Credit Suisse, one of the largest banks in the world, had to be rescued as it faced a collapse that could have brought down the entire banking system.
Peters and Stabenow did not respond to requests for comment.
Who could have seen this coming? Opponents to the rollback included then-House leader Nancy Pelosi, Sen. Elizabeth Warren, and Sen. Bernie Sanders, the latter of whom predicted the rollback would lead to a situation like the SVB collapse.
Metro Times outlined in 2018 how the rollbacks worked and where the risk lied:
“The broad package increases the threshold at which banks face stricter oversight, from $50 billion in assets to $250 billion in assets, allowing two dozen big-but-not-behemoth banks (think Suntrust and Fifth-Third) to make more risky moves. Other provisions include a loosening of regulations on credit unions and community banks who argue they were unduly burdened by some elements of Dodd-Frank. Most of these banks have less than $1 billion in assets.
The downsides are that if a few mid-sized banks with more than $200 billion in assets fail, that equals a behemoth bank. Mid-sized banks can also impact the economy on their own. As was noted in a March report by The Hill, mortgage lender Countrywide Financial had $200 billion in assets when it became one of the key players in the financial crisis.
A Congressional Budget Office scoring of the bill found it would slightly increase the possibility of bank failures and would likely mean more public funding for bank bailouts.
Though the federal government took over SVB and will make whole individuals and businesses who lost money at the bank, the banking industry is on the hook for those costs, so taxpayers avoided a bailout for now, although that may be a matter of semantics. “If your definition is government intervention to prevent private losses, then this is certainly a bailout,” Neil Barofsky, who oversaw the 2008 bailout, told NPR.
While there is some debate over whether the rolled back laws could have prevented the meltdowns, most see that move and quickly rising interest rates as part of the problem. Still, the Biden administration does not seem eager to reinstate the rolled back Dodd-Frank provisions, which could be in part because some Democrats voted for the bill.
Metro Times in 2018 highlighted the banking industry’s campaign contributions to Stabenow and Peters. The amount Stabenow took in from the financial sector doubled in the five-year period after the vote compared to the five year period before her vote, suggesting someone has already thanked her. Her 2018-2023 haul topped $920,000.
Peters, meanwhile, has taken in $2.4 million from the sector over the last five years — up from about $175,000 in the five year period preceding his vote. That includes at least $5,000 from SVB.
In 2018, Peters said his support was “driven by what’s best for Michigan’s middle-class, working families — not campaign contributions.”
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