Biden Eyes New Regulations As Congress Dives Into Silicon Valley, Signature Bank Failures

President Joe Biden is expected to tighten regulations on banks, prompted by the biggest banking collapse since the 2008 financial crisis.

What To Know: According to a Washington Post report citing two people familiar with internal discussions, the Biden administration is gearing up to slap new rules on banks following the collapse of SVB Financial Group SIVB and Signature Bank SBNY.

Although the banks were not bailed out, depositors were backstopped by the government in an effort to strengthen public confidence in the financial system. Now the White House wants to put tougher rules in place to prevent a similar occurrence altogether, the report said. 

The new banking rules could include higher capital requirements, formal plans for how to handle any future crises and regular stress tests. 

"Silicon Valley was not going to be stress-tested until 2024 under the Fed’s tailoring provisions — that’s just insane for a bank of its size," former FDIC attorney Todd Phillips reportedly said.

Details of the potential solution remain unknown, but Biden aims to reestablish measures that were deregulated during the Trump administration, per the Post.

The report indicates the new rules would have to be enacted by the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency separately.

FDIC chair Martin Gruenberg; the Federal Reserve's Vice Chair for Supervision Michael Barr; and the Treasury Undersecretary for Domestic Finance Nellie Liang testified in front of Congress this week. 

In an exchange with lawmakers, Barr said Silicon Valley Bank had been identified as being "not well managed" ahead of its collapse, which suggests supervisory action was not enforced when it should have been.

Related Link: Banking System Is Sound, Regulators Say In The Face Of Flurry Of Questions From Senate Banking Committee

In continued testimony on Wednesday, all three government officials said they believe supervision should be strengthened. The Fed is undergoing a self-assessment to determine if it failed in any of its supervisory roles, but banks were allowed to fail because they failed to address risks, they said. 

New legislation introduced by Sen. Elizabeth Warren on Wednesday aims to give regulators the necessary tools to hold executives of failed banks responsible.

"Americans are sick and tired of fat cat bankers paying themselves handsomely while risking other people's hard-earned money," Warren said.

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