WASHINGTON, March 30 (Portal) – The Biden administration has called on banking authorities to tighten regulation of mid-sized banks, which it says could be pushed through without the backing of a divided Congress.
Banks with assets between $100 billion and $250 billion should hold more liquid funds, increase capital, undergo regular stress tests and write “living wills” detailing how they can be wound up, the White House said.
“These are all actions that can be taken under applicable law, and therefore there is no need for action by Congress to authorize the authorities to take any of these steps,” a senior White House official said.
The White House push for more regulation comes three weeks after the collapse of US lenders Silicon Valley Bank and Signature Bank sparked market turmoil. Bank stocks plummeted worldwide and the uproar sparked a government-orchestrated bailout of Switzerland’s Credit Suisse.
The White House proposals give new impetus to efforts by the Federal Reserve and other banking regulators to tighten oversight. Regulators told lawmakers this week that they are already looking to tighten rules, particularly for mid-size lenders with assets between $100 billion and $250 billion.
“Today, the President calls on the federal bank authorities to consider a series of reforms that will reduce the risk of future banking crises,” the official said, underlining the need to “protect the resilience and stability of the banking system going forward.”
A 2018 law relaxing the requirements of the post-financial crisis Dodd-Frank Act, pushed by Republicans and some moderate Democrats, raised the threshold at which banks are considered systemic risk and subject to tighter oversight $50 billion to $250 billion. Silicon Valley Bank had $209 billion in assets at the end of last year.
President Joe Biden’s administration also called on regulators to require midsize institutions to undergo annual stress tests, which larger banks are already subject to, and to submit so-called “living wills,” or resolution plans.
Chris Kotowski, an analyst at Oppenheimer Bank, said alignment of the regulatory framework for banks big and small is welcome, but there should be a “reasonable” period of time for the changes to be phased in.
“READY, FIRE, AIM”
The proposals were immediately criticized by banking lobbyists. Greg Baer, head of the Bank Policy Institute, said more regulation of all banks would drive up costs in the economy.
“It would be unfortunate if the response to poor management and failing supervision at the SVB was additional regulation for all banks,” he said in a statement.
“The Fed has only just begun its promised review. This has a strong sense of ‘ready, fire, aim’.”
A partial reinstatement of the rules reversed under former President Donald Trump’s administration would affect fewer than two dozen companies out of more than 4,000 FDIC-insured US banks.
Banks that would qualify, according to Fed data, include Citizens Financial Group (CFG.N), First Republic Corp (FRC.N), Fifth Third (FITB.O), Huntington (HBAN.O) and Regions (RF .N ). The banks did not immediately respond to requests for comment.
According to Federal Reserve data, some 30 banks had more than $100 billion in assets at the end of last year, including Silicon Valley Bank and Signature Bank.
Almost half of them have already faced more rigorous scrutiny as they had more than $250 billion in assets and a handful of banks were close to crossing that threshold.
The Federal Reserve’s top regulator told Congress this week that Silicon Valley has done a “terrible” job at managing risk, but Republicans and Democrats have also criticized the regulators and the agency for lax oversight.
Some Democrats, including Senator Elizabeth Warren, have called for the 2018 amendments to be repealed entirely. However, analysts say prospects for legislation are unlikely given Republican control of the House of Representatives.
Warren welcomed Biden’s push for tougher banking rules, saying bank executives “charged risk to boost profits” after rules were weakened under Trump and Federal Reserve Chair Jerome Powell.
“Earlier this week, financial regulators in the Senate Banking Committee committed to doing exactly what President Biden is asking: strengthening our banking rules going forward to keep our economy safe,” she said on Twitter.
The White House official said senior administration officials have been in close contact with regulators about the proposed changes, but said the timing of any action will be left to independent authorities.
Reporting by Andrea Shalal and Pete Schroeder; additional reporting by Nandita Bose, Dan Burns, Tatiana Bautzer, Saeed Azhar, Lananh Nguyen; Edited by Rami Ayyub, Heather Timmons, Andrea Ricci and Deepa Babington
Our standards: The Trust Principles.
Peter Schroeder