- Mehrsa Baradaranbanking law professor at the University of California, Irvine, where she writes about financial inclusion, inequality and the racial wealth gap.
- David Sirotainvestigative journalist and founder of The Lever.
The collapse of Silicon Valley Bank and Signature Bank are the largest bank failures since the 2008 financial crisis, which prompted lawmakers to pass legislation to increase regulations on banks and other financial institutions. But during the Trump administration, a number of Democrats joined Republicans in Congress to weaken laws including Dodd-Frank, the landmark regulatory reform passed in the wake of the crisis. Executives from Silicon Valley Bank and Signature Bank were among those who successfully lobbied to weaken rules that may have prevented their collapse. The fallout from the bank failures now threatens to spread to other financial institutions, and the Biden administration has taken extraordinary steps to guarantee all deposits in the two failed banks and to shore up the rest of the sector in what many are criticizing as a bailout of rich bank customers. For more, we speak with The Lever's David Sirota and banking law professor Mehrsa Baradaran, whom progressive groups at one point backed as the Biden administration's pick for comptroller of the currency, an influential regulator of banks.
AMY GOODMAN: Fallout continues to grow from the collapse of Silicon Valley Bank and Signature Bank. They were the largest bank failures since the 2008 financial crisis and the second- and third-largest bank failures in U.S. history.
Over the weekend, the Biden administration took extraordinary measures to guarantee anyone who had accounts with the collapsed banks would be able to get back all of their money regardless of the amount. Under standard rules, the FDIC only insures $250,000 per account.
The economist Dean Baker described the Biden administration’s move as a bailout for bank customers with large deposits. Baker wrote, quote, “The reason this is a bailout is that the government is providing a benefit that the depositors did not pay for,” unquote.
Despite the Biden administration’s actions, the stock value of a number of other regional banks have plummeted, raising fears of a larger banking crisis. Just after the stock market opened Monday, President Biden addressed the nation and defended the stability of the U.S. banking system.
PRESIDENT JOE BIDEN: We must reduce the risks of this happening again. During the Obama-Biden administration, we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank law, to make sure the crisis we saw in 2008 would not happen again. Unfortunately, the last administration rolled back some of these requirements. I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure will happen again and to protect American jobs and small businesses. Look, the bottom line is this: Americans can rest assured that our banking system is safe, your deposits are safe.
AMY GOODMAN: During the Trump administration, a number of Democrats joined Republicans in weakening the Dodd-Frank law. Executives from the now-collapsed Silicon Valley Bank and Signature Bank were among those who successfully lobbied to weaken the regulations for midsize banks. Those executives included former Congressmember Barney Frank, who joined the board of Signature Bank after leaving Congress, where he co-authored the Dodd-Frank bill. He lobbied to weaken his own bill. Over the past seven years, Frank received at least $2.4 million in cash and stock from Signature Bank before the bank collapsed.
We’re now joined by two guests. David Sirota is award-winning investigative reporter, founder of the news website The Lever. His latest piece is headlined “SVB’s Lobby Groups Fought Proposal to Bolster Deposit Insurance.” He’s joining us from Denver, Colorado. And in Irvine, California, we’re joined by Mehrsa Baradaran. She’s a banking law professor at the University of California, Irvine. Her books include The Color of Money: Black Banks and the Racial Wealth Gap and How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy.
Mehrsa Baradaran, let’s begin with you. Can you respond to what took place over the weekend, the significance of the second- and third-largest bank failures in U.S. history, and how the Biden administration responded?
MEHRSA BARADARAN: Yes. Thank you. Thank you for having me on.
I mean, what we saw this weekend was another — another, if anyone’s been paying attention — bank run that shouldn’t have been a bank run, because it doesn’t look like a bank. It is something that smells like and walks like a bank but wasn’t technically regulated like a bank that it would be — that size and shape would be regulated. And so, that bank had a simple run. You know, there’s panic caused by — you know, who knows? — Peter Thiel and friends. And when there’s panic, the bank is not long for this world. And that is exactly what happened to SVB bank.
And it is, you know, of course, exactly as what anyone could have predicted would happen happened, which is that a full force, you know, from Powell to Yellen to President Biden, saying, “Everything’s fine. We’ll take care of it.” I mean, we all saw this — you know, Tim Geithner tried to do in 2009, not as well as what was done here. Just, you know, you need trust in the system. You need people to put their money, keep their money in, because a run is really just — it’s panic. It’s like psychology. A bank that is stable can be run and be unstable. That’s all — everyone could have expected that if you have a run of a bank this size, there would be this happening.
The problem is that we kind of lie. We fudged about it beforehand. You know, we said, “Oh, no, this is not that kind of bank. We’re not going to bail it out.” This is the same thing as we saw with the shadow banking sector. It’s the same thing in crypto. It’s the same thing we see in — anytime we create these massive loopholes in the regular law, the law that was made to prevent bank runs. That’s the whole banking structure. It’s been perforated by holes for the last 30, 40 years, big holes, you know, from lobbyists, from industry. And when you put a bank in one of those holes, and it’s a big bank, and you see that every venture capital fund is — or, every startup fund is at that bank, you have to wonder why. And, you know, the why is that there were some exceptions. And, of course, when those go bad, the promises that were made when those exceptions were written into law, which are that it’s not like the other banks, it won’t have a bailout, those go away very quickly. And so, it’s really just about truth telling. What kind of institution is it? And does it have to apply by the rules as every other institution like it?
JUAN GONZÁLEZ: I’d like to bring David Sirota into the conversation. David, your reaction to the Biden administration’s efforts to address this crisis, especially given the fact that we’ve been told now, ever since the last major financial crisis in 2008, that it was only the systemically important banks — the JPMorgan Chases, the Wells Fargos, the Banks of America — that the government had major concerns about?
DAVID SIROTA: Look, I think the Biden administration was afraid that there would be a wider contagion, that people would see one bank’s depositors lose their uninsured money and that other people would start pulling their money out of the banks.
Now, to my mind, what’s insane about this situation is that this bank had — I think north of 90% of the deposits in the bank were uninsured, which is insane, because FDIC insurance is a kind of well-known thing, $250,000 limits, and there are ways to do all sorts of financial management, risk management, where you can have a lot of money in a bank, but not 90% of your money, whether you’re a business or anything else, is not uninsured. So, the failure of risk management practices on many of these depositors — a bank, again, 90% of the deposits being uninsured — really shows, I think, a cavalier attitude by some of these depositors, who must have either not done any risk management at all or simply presumed that they would have the political power and wherewithal to get the government — in a crisis, that the government would swoop in and ensure those uninsured deposits.
As we reported at The Lever, what’s very telling here, when we talk about deposit insurance, is that Silicon Valley Bank’s lobby groups in Washington fought recently, fought against a proposal to shore up federal deposit insurance for the relatively depleted Deposit Insurance Fund, the fund that will now guarantee those depositors’ deposits. The point being that if we’re going to have a discussion about extending deposit insurance and extending those limits and making sure that those limits, larger limits, apply to everybody, there is a Deposit Insurance Fund — there’s about $120 billion in that Deposit Insurance Fund, against $10 trillion of insured deposits in America. And it’s been the bank lobby that has fought against proposals, that it does not want to have to put in more money, does not want to have to pay those insurance premiums to make sure all of those deposits are covered. So we’re in a situation where bank regulators swoop in in a kind of haphazard way when they see a bank — when the decision is made for a particular bank to swoop in and backstop the uninsured deposits, but it’s not clear whether those guarantees extend to the entire banking system. There’s a question of: Is it fair to guarantee the deposits of uninsured depositors at a bank like Silicon Valley Bank but not extend those guarantees to everybody else?
JUAN GONZÁLEZ: And, Mehrsa Baradaran, what about this issue of the federal deposit insurance? From what I understand, 96% of Americans don’t have $250,000 to put into a savings account, so we’re talking about a very small percentage of the American people that are actually affected even by the loss of money if they have more than $250,000 in a bank. Why has the government, for instance, not even raised the — as David was saying, raised the minimum insurance a little higher, rather than now, apparently, go outside of its legal authority to say we’re going to insure all depositors at these banks?
MEHRSA BARADARAN: Yeah, yes. So, I mean, this is a good question. And, yes, something I said yesterday was there are two kind of lies. Right? There’s white lies, and there are FDIC insurance limits, because FDIC insurance limits are not meant to be — you know, they are technically legal, but there’s never been a crisis, you know, as far back as you go — except for the Great Depression, where there wasn’t FDIC insurance — that the limit caused a problem. During 2008 also, we had $100,000 limit, and they just raised it, because it’s not about what money is insured. It’s a — a panic is a psychological phenomenon. So, if I’m going to lose $100 to $1,000, some people are going to take their money out no matter what, because, you know, it’s your money. We’re not talking about sort of, like, calculations. No one’s sitting on their couch and going, “Should I go to the bank? It’s only $50,000.” You know? It really is — you have to insure all of it or none of it. And so, I’ve always understood the $250,000 limit as like a suggestion for, you know, how to move your money around. But in a panic, of course there’s going to be a bailout. And it’s not going to be through FDIC insurance. It’s through 13(3) Fed powers. This is all Federal Reserve. I mean, the systemic risk engines are on. Those engines are much more powerful than the FDIC engines.
But I do want to say something about the ex ante, why — why was all of this stuff allowed to happen? And this is where we get to regulation and, David said, you know, the haphazardness. That also is not accidental. You know, I have personal experience, having been a nominee in the Biden administration and seeing the other nominees come through. We have not gotten — the Biden administration was not able to appoint a OCC regulator. They have an acting for that for FDIC when that position came open. I mean, Trump’s appointees vacated, and, you know, they had to move things around for the FDIC. They had to bring someone from the board who was already confirmed and put them in. You know, and then, for the OCC, none of the nominees that we got vetted got — you know, could get enough support. And so, these are things that we, you know, regulators, if we had been in those positions, would have done very differently and very quickly. These are problems that we all knew about.
And I think it’s not just that there’s a haphazardness. There isn’t really a forward motion. It’s defense, because the industry really is quite powerful across the board. And it’s not that the industry is — you know, there’s community banks over here, and there’s big banks. But at times, there’s just, you know, one incentive, which is sort of deregulation. You know, let’s work out deals rather than create a lot of rigid rules and hierarchies, and especially for banks like Silicon Valley Bank, which, you know, there’s no — they weren’t doing anything Lehman-like. They weren’t doing anything — well, I mean, they weren’t doing anything more risky than any other bank right now. It’s just that banks have runs. That’s how banks work, and especially in a market like this, where interest rates are going up. You know, they have bonds. You have the crypto thing. Who knows what sort of one or two, three things caused the domino effect? But that is the nature of banking. It’s risk, and it’s susceptible to runs like this.
AMY GOODMAN: Well, let’s go back to the 2018 Trump-era law, when Trump rolled back some banking regulations. Senator Elizabeth Warren spoke out against the bill, that Trump signed off on, but Democrats and Republicans voted for it. This was her on the Senate floor before the vote.
SEN. ELIZABETH WARREN: So, I will make a prediction. This bill will pass. And if the banks get their way, in the next 10 years or so there will be another financial crisis. Of course, when the crash comes, the big banks will throw up their hands and say it’s not their fault, nobody could have seen it coming. And then they’ll run to Congress and beg for bailout money. And, let’s be blunt, they’ll probably get it. But just like in 2008, there will be no bailout for working families. Jobs will be lost. Lives will be destroyed. The American people, not the banks, will once again bear the burden.
AMY GOODMAN: And Senator Elizabeth Warren, of course, proved to be right. I wanted to go to David Sirota, one of the pieces in Lever news: “Eight years before the second-largest bank failure in American history occurred this week, the bank’s president personally pressed Congress to reduce scrutiny of his financial institution, citing the 'low risk profile of our activities and business model.'” Can you take it from there? Tell us who is the CEO of SVB, and also talk about Barney Frank.
DAVID SIROTA: Sure. Greg Becker, the Silicon Valley president, submitted testimony when Congress was looking at whether to weaken the then-current Dodd-Frank law. And what he was particularly pushing for was to raise the thresholds by which banks were subject to stricter scrutiny. So, there was a $50 billion threshold. If a bank was bigger, had more assets than $50 billion, it faced higher capital requirements and more granular and more stringent stress tests to make sure that the bank wouldn’t fail. Ultimately, Greg Becker — and he was not alone — but he and the banking industry got their way, raising that threshold for Silicon Valley Bank and other similarly sized banks.
And Greg Becker, as one example, just to use him as an example, I mean, he held a fundraiser at his home for Democratic Senator Mark Warner of Virginia. And soon after, Mark Warner was one of those Democrats who — in that vote that Elizabeth Warren was talking about, was one of those Democrats that joined with 50 Republicans to pass that bill, that raised those thresholds, that ultimately meant that a bank like Silicon Valley Bank was not subjected by law, by rule, by Federal Reserve regulatory authority, was not subjected to the kinds of risk management and risk assessment that it would have been subjected to under the existing Dodd-Frank law.
You mentioned Barney Frank. Barney —
AMY GOODMAN: Let me just interrupt for second, David, because we have —
DAVID SIROTA: Sure.
AMY GOODMAN: — Senator Mark Warner. He was questioned by ABC This Week host Martha Raddatz over the weekend and asked if he regretted his 2018 vote to repeal parts of the Dodd-Frank Act. This is Senator Warner.
MARTHA RADDATZ: Do you regret that vote?
SEN. MARK WARNER: Martha, I still think — we put in place Dodd-Frank. I was proud to be one of the key authors of that bill. It strengthened the banking system. I do think these midsized banks needed some regulatory relief. End of the day, Martha, no matter what the capital had been in this bank, if you don’t get banking 101 straight, if you don’t manage your interest rate risks, if you’ve then got a run at $42 billion in a single day, unprecedented. … That is sending a valuable asset to somebody who’s going to [inaudible] —
MARTHA RADDATZ: So, Senator, you — you don’t regret that vote?
SEN. MARK WARNER: Listen, I think that was called the 2155 bill. I think it put in place a appropriate level of regulation on midsized banks.
AMY GOODMAN: David Sirota, your response to the Democratic Senator Mark Warner, who joined with the Republicans, along with, I think, 16 other Democratic senators, in weakening the Barney — the Frank-Dodd bill?
DAVID SIROTA: What you’re seeing there is the power of the banking industry. You’re seeing the power of Wall Street right there. A U.S. senator who voted to deregulate Silicon Valley Bank goes on television and continues defending it, defending the deregulation that his donors wanted, defending it even in the face of a bank failure, a bank that pushed for that deregulation that got itself exempted. That’s what we’re talking about when we talk about the power of the banking industry in Congress. It is so powerful that even a Democratic senator will go on television after a bank failure, from a bank that was exempted from those more stricter, stringent rules, will go on television and defend that bill.
Now, I’m glad to see that Congresswoman Katie Porter and others have said that they are going to put forward legislation to reverse what happened, what Mark Warner, as an example, supported. And that’s a good thing. And as we talked about before, there’s talk of extending deposit insurance. But the thing that has to happen, in my view, is that if you’re going to extend deposit insurance, you need to, one, make sure the banks put up the money for more of that insurance, and, two, that that insurance has to come with stronger regulations on these banks, so that they cannot gamble with depositors insurance and that regulators can know that there aren’t going to be bank failures as this proceeds.
AMY GOODMAN: And Barney Frank, if you could answer that question, the author of the Frank-Dodd bill?
DAVID SIROTA: Yeah. I mean, that’s an incredible story there. You’ve got the author of the Dodd-Frank bill, who then gets on the board of a bank, a bank that was this weekend shuttered. So, it shows — in my view, it shows the revolving door here between the policymakers and the banks that are trying to weaken policy. It’s almost a too on — if you put it into a movie about corruption, your screenwriter would say, “You can’t put that in. It’s too on the nose. It’s too ridiculous for the author of the bill to be on the board of a bank that was just shuttered.”
JUAN GONZÁLEZ: And, Mehrsa Baradaran, I wanted to ask you — David Sirota mentioned Greg Becker, the CEO of this failed bank. He was also a member of the Federal Reserve Bank of San Francisco until this weekend. Could you talk about the role of the Federal Reserve Bank? Because some people are claiming that it’s the rapid interest rate hikes of the Federal Reserve Bank that is leading to some of the stresses in some of these banks.
MEHRSA BARADARAN: Right. Well, the Federal Reserve does a variety of things. But one of the things that it does, one is the monetary policy. That’s the interest rate hikes. That’s actually just the bank’s fault. Everyone on the market knew that the rates were going up, and they just screwed up. And who has any explanation for why? Maybe they don’t understand how banks work. But the bonds that they held on for way too long, so that’s just a bad mistake.
But as far as the Fed’s supervisory role — right? So, the Fed has the monetary policy, but the Fed is actually the person who — the entity that is supposed to look at these systemic risks. So it’s not just the FDIC. The FDIC manages just insurance, which is a very, very tiny portion of actually what causes a bank run. None of the banks in 2008 that were in the shadow banking sector, none of them had depositors. Just, you know, Citigroup maybe had a little bit, but Lehman and Goldman and all these, they were not even bank holding companies at the time. And so, the FDIC is kind of a small — very small fish now in the big pond of banking regulators, especially since the financial crisis.
But since the financial crisis, one of the things that was decided was, look, you have these companies like AIG and these nonbanks and that are causing these crises, that are doing banking, and so there was this, you know, SIFI section, systemically important financial institutions, where everyone has to do systemic risk stress testing. I mean, even at the time — I’ve written about these laws for 10 years. Even at the time, I think those laws were very weak, meager responses to the financial crisis. They didn’t do it.
But this bank got an exception from those laws, the systemic risk, sort of that stress testing thing. It’s supposed to be above the certain $50 billion or something, you get certain different requirements. And that, the Crapo bill in 2018, the one that Warren was talking about, very presciently, saying that this would be unprecedented, which is exactly what this president said — you know, that bill essentially took these carved-out exceptions for some of these banks, including this one, for the reasons — you know, it’s better for communities, right? And it’s better for small loans and things like that.
And so, now we’re using, I think, in a very cynical way, unfortunately — it is true that we have a glut of community banks in this country. It is true that we’ve got five major banks, and they’re not lending those small to midsized accounts. And so we do need regulatory relief, whatever that means in that language, to help these small banks. But that’s not what this was. This was a loophole. This was an exception for not a community bank. These were venture capital funds. I mean, they need the money. I mean, Silicon Valley, all of these companies need someone to service their finances, but that’s just a symptom of a broken financial system. It’s sort of rent seeking everywhere you go. And JPMorgan will probably buy this bank, and who knows if they’ll give the same services as SVB bank did?
AMY GOODMAN: Finally, on a different subject, David Sirota, as founder of Lever news, which has been doing so much on East Palestine, and there might be some parallels, you’ve looked at the last month’s toxic train derailment. Do you see a link between the rollback of railway safety regulations and banking regulations? And talk specifically about the rail lobbyist turned senator who could block the safety bill.
DAVID SIROTA: Yeah, I mean, I think there’s plenty of parallels here. I mean, the crisis happens. There is a push for regulation. Then people forget, or the politicians hope people forget, and then there’s a deregulatory push.
On the rail situation, there was a spate of derailments in 2014, 2013, that prompted a push for more regulation. When that push for regulation happened, chemical industry lobbyists essentially weakened the rules to make sure that trains like the one in Ohio were not classified as high-hazard flammable trains, made sure that they weren’t subjected to those tougher rules. So you can see the parallel there with the banks, again, a push to not subject the banks to tougher rules, a push to not subject the rail companies to tougher rules. A disaster happens.
Now there’s a push for new regulations, rightly so, in my view — the Ro Khanna bill with Chris Deluzio from Pennsylvania in the House; there’s a bipartisan bill in the Senate. But there’s already been an effort to slow walk them. And that effort to slow walk them has been led, as we reported at The Lever, has been spearheaded by John Thune, the Republican senator who’s the number two ranking Senate Republican, who was literally a registered lobbyist for a railroad company and who has spearheaded in the past the effort to stop these regulations.
We have been doing this reporting. It’s important to hold these politicians, their feet to the fire, whether it’s Mark Warner or John Thune. We hope Democracy Now! viewers will help us. You can find all our work at LeverNews.com/democracynow to help us continue doing this reporting, because, Amy, your question is exactly right: Who are the politicians who are playing the role to stop the regulatory policies that need to be put in place after these crises? I guarantee you, whether it’s on rail issues or whether it’s on banking issues, there will be even — you saw Mark Warner on financial stuff, you will see John Thune on rail stuff — that even in the aftermath of a disaster, these lobbies are so powerful that they have people in places like the U.S. Senate to stop anything from happening. And the only way anything will happen, whether it’s on rail safety or on regulating the banks, will be if enough people actually respond and demand that their lawmakers take action.
AMY GOODMAN: David Sirota, we want to thank you for being with us, founder of The Lever, and we’ll link to The Lever at democracynow.org, and Mehrsa Baradaran, banking law professor at the University of California, Irvine. Progressive groups at one point backed Baradaran as the Biden administration’s pick for comptroller of the currency, which is an influential regulator of banks.
Next up, an independent autopsy of the activist shot dead while protesting the construction of Cop City in Atlanta suggests that they were sitting cross-legged with their hands in the air when police shot Tortuguita 14 times, killing them. We’ll speak to the family’s attorney and hear from their parents. Stay with us.