'White House to Call for New Midsize Bank Rules After SVB, Signature Failures' - WSJ
The White House is planning as soon as this week to recommend tougher rules for midsize banks, according to people familiar with the matter, after the collapse of two lenders earlier this month sent tremors through the banking system.
The recommendations are expected to call for new rules from the Federal Reserve and other agencies, including for banks with between $100 billion to $250 billion in assets.
The Fed is already rethinking a number of its rules related to those banks after Silicon Valley Bank and Signature Bank failed. Options include tougher capital and liquidity requirements, as well as steps to strengthen annual “stress tests” that assess banks’ ability to weather a hypothetical severe downturn. The White House declined to comment.
The recent worries about U.S. banks have centered on regional lenders that are perceived to be at risk of customers pulling deposits. Both SVB and Signature had large amounts of uninsured deposits—or customers with more than the standard deposit-insurance cap of $250,000 per depositor.
President Biden has called for Congress to toughen penalties on bank executives deemed responsible for financial institutions failing. The White House hasn’t coalesced around additional recommendations for congressional action, the people said. The Washington Post earlier reported some of the details of the administration’s planned recommendations.
White House officials have discussed calling for legislation to restore measures in the 2010 Dodd-Frank law that were rolled back during the Trump administration. But that rollback received support from a number of Democratic lawmakers, including some Senate Democrats facing re-election next year. That could make passing legislation on the issue difficult.
The White House has said it is encouraged by proposed legislation from Sen. Elizabeth Warren (D., Mass.) and Rep. Katie Porter (D., Calif.) that would revive the financial regulations that were changed during the Trump administration. The lawmakers favor reversing a 2018 change that raised to $250 billion from $50 billion the asset threshold at which banks automatically face strict stress tests and other rules. The White House hasn’t formally endorsed the proposal.
Even without new legislation, the Fed has the flexibility on its own to impose tougher rules on banks with $100 billion in assets or more.
Administration officials also have discussed the idea of revamping federal deposit insurance by either temporarily extending insurance to all bank customers or raising an existing insurance cap of $250,000. But some in the administration are skeptical of such an effort, some of the people said. Either step probably would require congressional action.
Top administration officials, including Treasury Secretary Janet Yellen, have in recent weeks argued that Americans can trust that their deposits are safe. Calling for an overhaul to the deposit-insurance system could undercut such a message by suggesting the system is in need of fixes, and some administration officials prefer to wait before taking a position on the matter.
While some lawmakers are discussing the possibility of expanding deposit insurance, they haven’t reached an agreement on a proposal. The coming recommendations from the White House could call for further examining the issue. The Federal Deposit Insurance Corp. has said it would prepare a report on potential policy changes to the deposit insurance system by May 1.
Mr. Biden’s aides are hesitant to take actions that could be criticized as coming to the aid of wealthy people, the people familiar with the matter said. The president and his advisers have stressed that taxpayers won’t be on the hook for the administration’s previous efforts to address the fallout of the bank failures.
Those efforts included emergency assistance for banks and guaranteeing all deposits of SVB and Signature. Officials said the moves were needed to prevent the two bank failures from shaking the broader system and threatening other midsize lenders.
Officials say the messy collapse of two banks with assets above $100 billion—SVB had about $209 billion in assets, Signature around $110 billion—serves as a reminder that risks to the system don’t necessarily stem exclusively from global megabanks that have trillions of dollars in assets.
The failure of a bank with $100 billion in assets “can really cause a lot of systemic risk and ultimately contagion across the financial system,” Rohit Chopra, the head of the Consumer Financial Protection Bureau, said at an industry conference this week. Mr. Chopra also sits on the board of the FDIC.
Some fears about the health of regional banks have quieted, especially after the FDIC said First Citizens Bancshares Inc. was buying large pieces of SVB. New York Community Bancorp Inc.’s Flagstar Bank said it would take over Signature’s deposits.
But some smaller and midsize banks could still be at risk over the coming months if they face prolonged pressure on their deposits.
First Republic Bank, a San Francisco lender that has a large uninsured deposit base, has been under investor scrutiny despite efforts to bolster its health.
On Wednesday, a top Fed official blamed bank mismanagement for SVB’s collapse, while acknowledging his agency’s rules and its bank supervisors fell short.
“I think that any time you have a bank failure like this, bank management clearly failed, supervisors failed and our regulatory system failed,” Michael Barr, the Fed’s vice chairman for banking supervision, told House lawmakers.