Biden calls for stronger banking safeguards, rollback of Trump-era rules

President Biden on Thursday called on federal regulators to consider imposing stronger safeguards on the banking industry in the wake of the failure of Silicon Valley Bank, in part by reversing Trump-era rollbacks.

Biden urged federal banking agencies, in consultation with the Treasury Department, to consider a set of reforms that the White House said would reduce the risk of future banking crises by reinstating old rules around oversight.

The White House called for reestablishing rules rolled back during the Trump administration that lowered the asset threshold for banks that receive tougher oversight; for greater liquidity requirements; and for more frequent stress tests, which evaluate potential risks that a bank could face and ensure they have enough capital to withstand potential losses.

The Biden administration also suggested regulators apply long-term debt requirements to a wider range of banks. Regulators currently require the largest banks to issue a minimum amount of long-term debt, which can serve as a buffer in the event of a run on the bank.

The administration is also calling on agencies to ensure the cost of replenishing the Deposit Insurance Fund, which is used to make depositors whole in the event of a failure, is not borne by smaller community banks.

A White House official emphasized that the reforms Biden is suggesting can be enforced by federal regulators through existing authority and do not require congressional action.

The official said any timetable for imposing new regulations would ultimately be up to the other agencies.

Then-President Trump in 2018 signed a bipartisan bill to weaken certain banking regulations that were passed under the Dodd-Frank Act of 2010. The measure released regional banks from tighter regulations by raising the threshold for closer Federal Reserve oversight from $50 billion to $250 billion in assets.

That increase exempted Silicon Valley Bank (SVB) and dozens of others from the strictest federal oversight.

Biden and the White House have sought to contain fears of a lingering banking crisis after the failure of SVB and Signature Bank earlier this month.

Those two banks failed after account holders started pulling out their money rapidly. Days later, a consortium of 11 larger banks provided $30 billion to prop up California-based First Republic after its credit was downgraded by ratings agencies including Fitch, which cited “uninsured deposits as a percentage of total deposits” as a reason for the demotion.

Democrats have in recent weeks rallied around reimposing regulations loosened during the Trump administration, and Biden last week urged Congress to give the Federal Deposit Insurance Corporation more power to punish executives in charge of banks that fail and require assistance from the federal government.

Treasury Secretary Janet Yellen earlier Thursday bemoaned that the Biden administration “inherited a financial stability apparatus at Treasury that had been decimated.”

—Updated at 2:40 p.m.