Joe Biden is calling on banking regulators to toughen the supervision and regulation of large regional banks, as the White House announced reforms it would back in the wake of the collapse of Silicon Valley Bank this month.
The US president’s move comes as policymakers in Washington are shifting from the emergency response to the recent banking crisis to considering new measures to bolster the financial system in the long term.
The White House said federal regulators, in consultation with the Treasury department, should consider rolling back Trump-era rules that loosened liquidity and capital requirements for banks with between $100bn and $250bn in assets.
The White House also called for regulators to explore increasing the frequency of capital stress tests and reinstating the requirement to submit comprehensive resolution plans for such banks.
“The president believes that the weakening of common sense bank safeguards and supervision during the Trump administration for large regional banks should be reversed in order to strengthen the banking system and protect American jobs and small businesses,” it said on Thursday.
Given deep divisions on Capitol Hill over banking regulations, the White House said Biden was focusing on changes that could be made without new action from Congress.
It said it would also like banks to bolster their stress tests “to ensure that banks with $100bn or more in assets have enough capital to withstand rising interest rates”.
The administration also backed expanding “long-term debt requirements to a broader range of banks” and called on regulators to “move expeditiously in proposing new rules”.
Biden is also calling for the deposit insurance fund, which the Federal Deposit Insurance Corporation relies on to pay back depositors in failed banks, to avoid hitting community banks as it replenishes the fund with fees from other lenders.
Biden administration officials have said an expansion of deposit insurance, possibly raising or dropping the $250,000 limit that is currently in place, could be on the table as part of longer-term changes to banking regulations. But the White House did not make any specific proposal on Thursday because such a measure would need congressional approval.
Biden’s call for tougher rules comes as a trio of top US regulators faced a drubbing this week from lawmakers, who accused them of being “asleep at the wheel” and failing to adequately supervise and regulate the banking sector.
The White House proposals echo comments from Michael Barr, who leads financial oversight at the Federal Reserve. He suggested during the hearings that there needs to be more stringent capital and liquidity standards for lenders with more than $100bn in assets.
He also said the Fed, as part of its review into what went wrong with SVB, would investigate where it fell short in using the full force of its tools.
The central bank is looking into ways to toughen up its oversight of midsize lenders, including bolstering the stress tests it carries out annually, which evaluates lenders’ ability to withstand adverse economic and financial scenarios.
Republican lawmakers hit back at the idea that tougher regulations are needed, however, suggesting there will be significant opposition to Biden’s proposals.
Senator Katie Britt of Alabama on Tuesday said: “I think that’s what people hate about Washington. We have a crisis and you come in here without knowing whether or not you did your job. You say you want more. That’s not the way this works. You need to be held accountable, each and every one of you.”
Patrick McHenry, chair of the House financial services committee, added on Thursday: “The Biden Administration continues to politicise the failure of SVB and Signature Bank to push long-held progressive priorities unrelated to the causes of the collapses.”
“Instead of giving more authority to regulators who were asleep at the wheel before these bank failures, we should hold them accountable for their inability to utilise their existing supervisory tools,” he said.
In the wake of SVB’s collapse, lawmakers have backed a number of bipartisan bills aimed at enhancing oversight of the Fed itself. On Thursday, progressive Democrat Elizabeth Warren of Massachusetts and Republican senator Thom Tillis pushed for the 12 regional banks that make up the Federal Reserve system to be subject to the Freedom of Information Act, which requires federal agencies to respond to requests for records and comply with information demands from Congress.
Warren, alongside Rick Scott, a Republican lawmaker from Florida, has also called for the Fed’s internal investigator to be replaced with one appointed by the president.
“We have the same independence and authorities afforded to all inspectors general to audit and investigate the board,” the Fed’s internal watchdog said in response to the bill. “We have and will continue to provide independent and robust oversight over both the board and the CFPB.”