Barron’s reporter Carleton English discusses who is responsible for the bankruptcy of Silicon Valley Bank in “Varney & Co.”
The top Democrat on the Joint Economic Committee (JEC) in Congress blames the rollback of regulations under former President Trump for the failure of Silicon Valley Bank and calls for new “proactive regulation”.
Sen. Martin Heinrich, DN.M., the presidential nominee of the JEC, released a statement on Monday praising the measures taken by the Biden administration to stabilize the banking system and tech industry after Silicon Valley Bank (SVB) filed for bankruptcy. went and was acquired by the Federal Deposit Insurance Company (FDIC).
“While I am pleased that the administration and regulators acted quickly to ensure that small businesses and savers do not bear the brunt of this failure, perhaps this disaster could have been avoided,” Heinrich said.
In his statement, Heinrich criticized bipartisan reforms of elements of Dodd-Frank in 2018, saying that deregulation paved the way for the failure of SVB.
LIBERALS BLAME TRUMP FOR SILICON VALLEY BANK RAIDS UNDER THE 2018 BIPARTISAN BILL
Senator Martin Heinrich, DN.M., is calling for more regulation of banks after the collapse of Silicon Valley Bank. (Demetrius Freeman-Pool/Getty Images/Getty Images)
“The reforms in the Dodd-Frank Act were introduced to ensure the stability of the US financial system, in part by allowing regulators to take a clear look at the health and soundness of individual banks. Unfortunately, President Trump’s regulatory rollback has led us here,’ said Heinrich.
The New Mexico senator noted that the Joint Economic Committee had named SVB Financial Group in 2018 as one of the banks that would face almost none of the regulations originally implemented by Dodd-Frank under the legislative changes.
SVB went bankrupt last week after depositors panicked about the health of the bank and rushed to withdraw their money. It was the second largest bank failure in US history. Last year, the bank had $209 billion in assets and $175.4 billion in deposits, according to the FDIC.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| SIVB | SVB FINANCIAL GROUP | 106.04 | -161.79 | -60.41% |
On Wednesday, the bank posted a loss of $1.8 billion as its share price fell 60%. As of Friday, the FDIC had taken control of its operations and had begun making plans to pay back the insured deposits of customers who wanted them.
Over the weekend, citing the “systemic risk” of the SVB’s failure, the Treasury Department, the FDIC and the Federal Reserve announced that FDIC insurance funds will be used to prevent depositors from losing money even if their deposits exceed the statutory $250,000. limit for deposit insurance. Critics called the move a bailout, but the Biden administration denied that characterization, pointing out that “no losses associated with the Silicon Valley Bank resolution will be borne by taxpayers.”
SILICON VALLEY BANK: FED SAYS VICE CHAIR FOR SUPERVISION TO ASSESS WHAT LEADED TO RAIDS
A customer stands in front of a closed headquarters of the Silicon Valley Bank (SVB) in Santa Clara, California on March 10, 2023. Silicon Valley Bank was shut down Friday morning by California regulators and placed in charge of the US Federal Dep (Justin Sullivan/Getty Images/Getty Images)
Heinrich spoke positively of these “important steps” taken to ensure that companies that have deposited money with SVB keep their money and continue to pay their salary.
“Instead of bailing out shareholders or using taxpayers’ money, the Federal Reserve and other agencies will collect money from other regulated banks to protect the customers who bank with SVB, many of whom are small businesses,” Heinrich said.
“While I agree with this solution and have confidence in regulators’ ability to prevent further bank runs, these measures are not a substitute for proactive regulation and formal deposit insurance requirements that respond to the needs of the current economy.”
Conservative economists dispute the need for more regulation in response to the failure of the SVB.
EJ Antoni, a research fellow in regional economics at The Heritage Foundation’s Center for Data Analysis, told FOX Business on Saturday that the collapse had “nothing to do with Trump or Dodd-Frank” and more to do with an “unusual confluence of events”.
SILICON VALLEY BANK COLLAPSE UNDER JUSTICE INVESTIGATION
Pasadena police officers drive past the open Silicon Valley Bank Private branch in Pasadena, California on Monday, March 13, 2023. (AP Photo/Damian Dovarganes/AP Images)
Antoni explained that the bank was “almost exclusively dealing with tech companies that usually rely on rolling over large debts continuously,” meaning the companies “don’t pay off their debt, just take on new debt to pay off the old ones” .
“Secondly, SVB put a disproportionate amount of its money in long-term bonds. Normally that’s not a bad strategy, but it’s unwise if interest rates are zero, because those rates eventually have to rise,” said Antoni. “When interest rates rise, bond prices fall. This is because an investor who has the choice of buying an existing bond at a low interest rate or a new bond at a high interest rate chooses the new bond because it offers a better yield on the investment. If you want to sell the old bond with its lower interest rate, you must be prepared to sell it at a discount, otherwise no one will buy it.”
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According to Antoni, SVB misled itself by tying most of its deposits into bonds and having a non-diversified clientele who all needed their money at the same time.
“SVB had to sell its bonds at a loss to raise money,” Antoni said. “These types of limited transactions would not have been catastrophic, and in fact happen on a regular basis in the financial industry on a small scale.”
“SVB was an instance of mismanagement made possible by the unrealistically low rates of the Federal ReserveAntoni told FOX Business.
Andrew Miller of FOX Business contributed to this report.