Silicon Valley Bank, the 16th largest bank in the nation, collapsed the other day supposedly because it was “woke.” That insta-verdict is being bandied about by assorted right-wing influencers, Republican pols, and MAGA fellow travelers. How simple life would be if we all thought that way. If your garbage disposal goes on the fritz, surely the gizmo is woke. If your supermarket doesn’t stock your favorite yogurt, surely the store is woke. If your wifi goes down, surely your router is woke.
But seriously, folks. Isn’t it far more likely – I’m just brainstorming here – that SVB crashed because federal oversight of midsize banks was majorly loosened in 2018 by a deregulation law championed by congressional Republicans and signed by Donald Trump? That SVB crashed because the usual suspects removed the guardrails?
Bingo.
Back in 2010, congressional Democrats enacted Dodd-Frank, an oversight law designed to ensure that our banks would not fail, or at least be cushioned in the event of failure. Banks – big, midsize, and small – were required to keep enough capital on hand in order to withstand an economic or financial crisis. They were required to undergo annual “stress tests” of their readiness. They were required to maintain a “living will” that would smooth the way for an orderly dissolution, in case the worst did happen.
But those Big Brother actions didn’t sit well with the GOP. Eight years after enactment, Trump and his MAGA congressional minions decided to give the banks more Freedom. Trump called Dodd-Frank a “disaster” and vowed to “do a big number” on its “crippling” requirements. He signed a bill (authored by Republicans, with support from a small minority of centrist Democrats) that exempted most banks from the rules. Originally, the rules applied to all banks with assets ranging from $50 billion to $250 billion; after Trump wielded his pen, the rules applied only to bank with assets north of $250 billion. Trump extolled his action as “a big deal for our country.”
And sure enough, a bank with $209 billion in assets – freed from the federal requirements – has now collapsed. By all accounts, SVB didn’t have enough liquidity for a rainy day. It didn’t even have an in-house risk officer, as required by law prior to Trump. Didn’t anybody warn Trump and the Republicans that loosening the rules might lead to the exact scenario we’re now seeing? In fact, yes. The Congressional Budget Office, led by a Republican, warned in a document that the demise of “prudential regulation” would “increase the likelihood that a large financial firm with assets of between $100 billion and $250 billion would fail.”
Back in 2018, SVB spent half a million bucks lobbying Congress to remove the Dodd-Frank rules that supposedly imposed “significant burdens” on the bank ( at least according to its CEO). And to enhance its lobbying efforts, the bank also hired two former aides to Kevin McCarthy. Because of course.
It’s much easier for Republicans to chant their mindless “woke” mantra than to face the consequences of their actions. They led the way to loosen our banking laws, and the SVP collapse is the inevitable result. Capitalists (and, in SVB’s case, venture capitalists) sorely need guardrails, lest they be allowed to run rampant. Didn’t we learn these lessons during the Great Depression, which sparked the guardrails crafted by the New Deal?
By the way, the Biden administration stepped in on Sunday to protect all SVB depositors, courtesy of the FDIC. That’s the acronym for the Federal Deposit Insurance Corporation, which was created in 1933 by Franklin D. Roosevelt’s New Dealers. Republicans back in ’33 opposed the FDIC concept, denouncing it as “socialism.” Today’s Republicans are fine with the FDIC safeguarding our deposits. If only they could connect the dots and recognize the value of government oversight, that would truly be woke.