Barron’s reporter Carleton English explains who’s responsible for Silicon Valley Bank’s failure on “Varney & Co.”
The leading Democrat on the Joint Economic Committee (JEC) of Congress blames the backsliding of regulation under former President Trump for the failure of Silicon Valley Bank and calls for new “proactive regulation”.
Sen. Martin Heinrich, DN.M., president-elect of the JEC, released a statement on Monday praising the steps taken by the Biden administration to stabilize the banking system and the tech industry following the insolvency of Silicon Valley Bank (SVB ) and its takeover by the Federal Deposit Insurance Corporation (FDIC).
“While I’m glad the administration and regulators acted quickly to ensure small businesses and depositors didn’t bear the brunt of this failure, this catastrophe may have been averted,” Heinrich said.
In his statement, Heinrich criticized the bipartisan reforms of Dodd-Frank elements in 2018, saying deregulation set the stage for SVB to fail.
LIBERALS BLAME TRUMP FOR 2018 SILICON VALLEY BANK COLLAPSE CITING BIPARTISAN BILL
Sen. Martin Heinrich, DN.M., calls for increased regulation of banks following the collapse of Silicon Valley Bank. (Demetrius Freeman-Pool/Getty Images/Getty Images)
“The Dodd-Frank Act reforms were put in place 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 pushback got us here,” Heinrich said.
The New Mexico senator noted that the Joint Economic Committee named SVB Financial Group in 2018 as one of the banks that would face almost none of the regulations initially implemented by Dodd-Frank as part of the amendments to the law.
SVB became insolvent last week after depositors panicked over the health of the bank and rushed to withdraw their funds. It is the second largest bank failure in US history. Last year, the bank held $209 billion in assets and $175.4 billion in deposits, according to the FDIC.
| Teleprinter | Security | Last | Change | Change % |
|---|---|---|---|---|
| SIVB | SVB FINANCIAL GROUP | 106.04 | -161.79 | -60.41% |
On Wednesday, the bank posted losses of $1.8 billion as its share price fell 60%. On Friday, the FDIC had taken control of its operations and began making plans to return insured deposits to customers who wanted them.
Over the weekend, the Treasury Department, FDIC and Federal Reserve, citing the “systemic risk” posed by the failure of the SVB, announced that FDIC insurance funds would be used to prevent depositors from losing money, even if their deposits exceeded the statutory $250,000. limit for deposit insurance. Critics called the move a bailout, but the Biden administration denied that characterization, stressing “any loss associated with the Silicon Valley Bank resolution will not be borne by the taxpayer.”
SILICON VALLEY BANK: FED TELLS VICE PRESIDENT OF SUPERVISION TO REVIEW WHAT LEADED TO COLLAPSE
A customer stands outside the closed headquarters of Silicon Valley Bank (SVB) on March 10, 2023 in Santa Clara, California. Silicon Valley Bank was shut down by California regulators on Friday morning and was placed under the control of the US Federal Dep (Justin Sullivan/Getty Images/Getty Images)
Heinrich spoke favorably of these “key steps” being taken to ensure companies that have filed with the SVB keep their money and continue to make payrolls.
“Instead of bailing out shareholders or using taxpayers’ money, the Federal Reserve and other agencies will collect money from other regulated banks to protect customers who have done business with SVB, who include many small businesses,” Heinrich said.
“While I agree with this solution and have confidence in the ability of regulators to prevent any further bank runs, these measures are not a substitute for proactive regulation and formal deposit insurance requirements that meet the needs of today’s economy.”
Conservative economists dispute the need for increased regulation in response to SVB’s failure.
EJ Antoni, a regional economics researcher 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 a ” unusual confluence of events”.
SILICON VALLEY BANK COLLAPSE UNDER INVESTIGATION BY JUSTICE DEPARTMENT
Pasadena police officers walk past the open private branch of Silicon Valley Bank in Pasadena, Calif., Monday, March 13, 2023. (AP Photo/Damian Dovarganes/AP Images)
Antoni explained that the bank “deals almost exclusively with tech companies that typically rely on the continued rollover of large debts,” meaning the companies “don’t pay down their debt but simply take on new debt to pay off old ones.” “.
“Secondly, SVB has invested a disproportionate amount of its cash in long-term bonds. Ordinarily, this is not a bad strategy, but it is not a good idea when interest rates are zero, because these rates must eventually increase,” Antoni said. “When rates go up, bond prices go down. This is because an investor who has the choice of buying an existing bond at a low rate or a new bond at a high rate will choose the new bond because it is a better return on investment If you want to sell the old bond with its lower interest rate, you must be prepared to sell it at a discount, or no one will buy it.
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According to Antoni’s account, SVB doomed itself to failure by tying up most of its deposits in bonds and having an undiversified clientele that all needed their money at once.
“SVB had to sell its bonds at a loss to raise funds,” Antoni said. “Limited transactions like this would not have been catastrophic and in fact happen regularly in the small-scale financial sector.”
“SVB was a case of mismanagement made possible by the unrealistic tariffs of the Federal Reserve“, Antoni told FOX Business.
Andrew Miller of FOX Business contributed to this report.