Silicon Valley Bank collapse spurs calls for changes by Congress

In the wake of Silicon Valley Bank’s collapse, members of Congress want to make changes to the U.S. banking system. The proposals include protecting consumers from added fees and clawing back executives’ bonuses.

The Secure Viable Banking Act

First, Sen. Elizabeth Warren, D-Mass., and Rep. Katie Porter, D-Calif., want to reinstate stricter oversight. In 2018, Congress passed a bipartisan bill which increased the threshold for certain protections like stress tests from banks with $50 billion in assets to $250 billion. The SVB Act would repeal those deregulations.

“On the eve of the Senate vote in 2018, I warned – from right here on the Senate floor – that ‘Washington is about to make it easier for the banks to run up risk, make it easier to put our constituents at risk, make it easier to put American families in danger, just so that the CEOs of these banks can get a new corporate jet and add another floor to their new corporate headquarters.’ I wish I had been wrong,” Sen. Warren said.

But Republicans and even moderate Democrats aren’t willing to support this proposal.

“I think that’s a bit of a knee jerk reaction. I don’t support it. Again, liquidity is the issue here and not, you know, whether it’s capital requirements, clearly that wasn’t the problem here,”  Sen. Kevin Cramer, R-N.D., said.

Passing fees to consumers

To make all Silicon Valley Bank depositors whole, the Biden Administration is imposing what’s called a special assessment on banks. Sen. Josh Hawley, R-Mo., contends that’s a fancy way of saying fees. So he’s bringing a bill forward to stop banks from passing government-imposed fees on to consumers.

“If a Missouri community bank failed, I promise you what the line would be from all the D.C. lobbyists is, ‘Oh, that’s just business. You know, that’s creative destruction. That’s the market.’ But when it is a Silicon Valley Bank full of tech billionaires who are uber politically connected, oh, no, then it’s systemic risk, then it’s a contagion,” Sen. Hawley, said.

Executive accountability

Sen. Richard Blumenthal, D-Conn., is introducing legislation that would take back bonuses paid to executives just ahead of a collapse. SVB employees received pre-scheduled bonuses the day before the FDIC takeover. A couple weeks ago, the CEO and CFO collectively sold about $4 million in stock.

“They were self dealing, paying themselves bonuses. Those bonuses and all self dealing in stock transactions that benefit top management when banks are taken over ought to be clawed back,” Sen. Blumenthal said.

The Justice Department is beginning a new program to claw back bonuses and compensation of failed corporate leaders. While it officially begins today, it’s not clear if SVB executives will be impacted.