Business

Subterms

    More stories

    • 138 Shares129 Views

      in US Politics

      US senators grill banking regulators in first Silicon Valley Bank hearing

      by

      Lawmakers grilled federal banking regulators on Tuesday over their “massive failure in supervision” during the first congressional hearing on the collapse of Silicon Valley Bank (SVB) and Signature Bank.The Senate’s banking committee is the first to question officials on federal oversight of SVB, which was taken over by the federal government earlier this month after a severe bank run depleted its reserve. The collapse of the bank – the biggest bank failure since the 2008 financial crisis – has sparked wider fears about the soundness of the banking sector.Three financial regulators appeared in front of the committee: the Federal Reserve vice-chair for supervision, Michael Barr, the Federal Deposit Insurance Corporation (FDIC) chair, Martin Gruenberg, and the treasury’s undersecretary for domestic financing Nellie Liang.Two different framings were offered by Democrats and Republicans. Democrats emphasized the failure of the bank’s management and deregulation, specifically pointing to the scaling-back of regulation of mid-sized banks under the Trump administration.Sherrod Brown, the Democrat chair of the committee, pointed out that SVB execs were under pressure to grow the company, which led them to risky behavior.“It’s all just a variation of the same theme, the same root cause of most of our economic problems: wealthy elites do anything to make a quick profit, to pocket the reward and when the risky behavior leads to catastrophic failures, they turn to the government asking for help,” he said.Elizabeth Warren, who was a key creator of financial regulations after the 2008 recession, asked the officials one by one if they agree that there should be a strengthening of banking rules.“These collapses represent a massive failure in supervision over our nation’s banks,” she said. “Regulators burned down dozens of safeguards that were meant to stop banks from making risky bets.”Warren noted that the FDIC, under the Trump administration cut back on rules across the board, something that Gruenberg noted he voted against when he was on the FDIC’s board at the time.“I certainly think it’s appropriate for us to go back and review those actions in light of the recent episode,” Gruenberg said.Republicans, meanwhile, say the regulators failed to act despite warning signs. Republican members tried to carefully balance criticizing regulators without promoting stronger regulation, which would typically go against the party’s stance.“The Federal Reserve should have been keenly aware of the impact interest rate hikes would have on the value of securities, and it should have been actively working to ensure the bank and supervisors were hedging their bets and covering their risk accordingly,” said Tim Scott, the Republican ranking member of the committee.skip past newsletter promotionafter newsletter promotionMeanwhile, the regulators said they were well aware of the bank’s problems and had delivered warnings starting in 2021 that SVB managers failed to act on.Barr – who is heading the Fed’s investigation in the SVB collapse that will be published by 1 May – took on a bulk of lawmakers’ questions. Barr said the bank’s rating was a three on the Camels rating system, which measures the strength of a bank on various measures like liquidity and assets on a scale of one to five, with one being the strongest and five being weak.“The risks the bank faced, interest rate risk and liquidity risks, those are the bread and butter of banking issues. The firm was quite aware of those issues. They had been told by regulators, investors were talking about problems with interest rates and liquidity risks publicly, and they didn’t take the necessary actions,” Barr said.Barr said the Fed did not stress-test SVB in 2022, saying that a stress test is not the primary way regulators test for interest rates. He noted that stress testing for rising interest rates would be useful in the future.The Fed’s investigation will “consider whether the supervisory warnings were sufficient and whether supervisors had sufficient tools”, Barr said.“We are evaluating whether application of more stringent standards would have prompted the bank to better manage the risks that led to its failure,” Barr said. “Recent events have shown that we must evolve our understanding of banks, in light of changing technology and emerging risks.” More

    • 175 Shares129 Views

      in US Politics

      To prevent more bank runs, the Fed should pause rate hikes | Robert Reich

      by

      The global financial system is facing a crisis of confidence. Which makes this week’s meeting of America’s central bankers critically important.None of the 12 members of the Federal Reserve Board’s Open Market Committee were elected to their posts. The vast majority of Americans don’t even know their names, except perhaps for the chairman, Jerome Powell.But as they try to decide whether to raise interest rates and, if so, by how much, America’s central bankers are deciding on the fate of the American – and much of the world’s – economy.And they’re sitting on the horns of a dilemma.On one horn is their fear that inflation will become entrenched in the economy, requiring more interest-rate hikes.On the other horn is their fear that if they continue to raise interest rates, smaller banks won’t have enough capital to meet their depositors’ needs.Higher rates could imperil more banks, especially those that used depositors’ money to purchase long-term bonds when interest rates were lower, as did Silicon Valley Bank.That means that raising interest rates could cause more runs on more banks. The financial system is already shaky.The two objectives – fighting inflation by raising rates, and avoiding a bank run – are in direct conflict. As the old song goes: “Something’s got to give.” What will it be?The sensible thing would be for the Fed to pause rate hikes long enough to let the financial system calm down. Besides, inflation is receding, albeit slowly. So there’s no reason to risk more financial tumult.But will the Fed see it that way?The Fed’s goal last week was to stabilize the banks enough so the Fed could raise interest rates this week without prompting more bank runs.The Fed bailed out uninsured depositors at two banks and signaled it would bail out others – in effect, expanding federal deposit insurance to cover every depositor at every bank.On top of this, 11 of America’s biggest banks agreed to contribute a total of $30bn to prop up First Republic, another smaller bank caught in the turmoil.This “show of support” (as it was billed, without irony) elicited a cheer from Jerome Powell and the treasury secretary, Janet Yellen, who called it “most welcome”. (Of course it was welcome. They probably organized it.)But investors and depositors are still worried.Other regional banks across the US have done just what Silicon Valley Bank did – buying long-dated bonds whose values have dropped as interest rates have risen. According to one study, as many as 190 more lenders could fail.On Monday, First Republic remained imperiled notwithstanding last week’s $30bn cash infusion. Trading in its shares on the New York Stock Exchange was automatically halted several times to prevent a freefall.Multiple recent downgrades of banks by ratings agencies like Moody’s haven’t helped.Reportedly, the Biden administration is even in talks with Warren Buffett, the chairman of Berkshire Hathaway, who invested billions to bolster Goldman Sachs during the 2008 financial crisis.Meanwhile, on the other side of the Atlantic, the European Central Bank last week raised interest rates by half a percentage point, asserting its commitment to fighting inflation.Yet the higher interest rates, combined with the failure of the two smaller American banks, have shaken banks in Europe.Just hours before the European Central Bank’s announcement, the banking giant Credit Suisse got a $54bn lifeline from Switzerland’s central bank.Yet not even this was enough to restore confidence. After a several days of negotiations involving regulators in Switzerland, the US and the UK, Switzerland’s biggest bank, UBS, agreed over the weekend to buy Credit Suisse in an emergency rescue deal.Finance ultimately depends on confidence – confidence that banks are sound and confidence that prices are under control.But ever since the near meltdown of Wall Street in 2008, followed by the milquetoast Dodd-Frank regulation of 2010 and the awful 2018 law exempting smaller banks, confidence in America’s banks has been shaky.November’s revelation that the crypto giant FTX was merely a house of cards has contributed to the fears. Where were the regulators?The revelation that Silicon Valley Bank didn’t have enough capital to pay its depositors added to the anxieties. Where were the regulators?Credit Suisse had been battered by years of mistakes and controversies. It is now on its third CEO in three years.Swiss banking regulations are notoriously lax, but American bankers have also pushed Europeans to relax their financial regulations, setting off a race to the bottom where the only winners are the bankers. As Lloyd Blankfein, then CEO of Goldman Sachs, warned Europeans: “Operations can be moved globally and capital can be accessed globally.”One advantage of being a bank (whether headquartered in the US or Switzerland) is that you get bailed out when you make dumb bets. Another is you can choose where around the world to make dumb bets.Which is why central banks and bank regulators around the world must not only pause interest rate hikes. They must also join together to set stricter bank regulations, to ensure that instead of a race to the bottom, it’s a race to protect the public.Banking is a confidence game. If the public loses confidence in banks, the financial system can’t function.In the panic of 1907, when major New York banks were heading toward bankruptcy, the secretary of the treasury, George B Cortelyou, deposited $35m of federal money in the banks. It was one of the earliest bank bailouts, designed to restore confidence.But it wasn’t enough. JP Morgan (the man who founded the bank) organized the nation’s leading financiers to devise a private bailout of the banks, analogous to last week’s $30bn deal.Confidence was restored, but the underlying weaknesses of the financial system remained. Those weaknesses finally became painfully and irrevocably apparent in the great crash of 1929.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California, Berkeley, and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com More

    • 163 Shares169 Views

      in US Politics

      Elizabeth Warren says Fed chair ‘failed’ and calls for inquiry into bank collapse

      by

      Political fall-out in the US from the collapse of Silicon Valley Bank continued on Sunday when leftwing Senator Elizabeth Warren hit the morning talk shows and repeatedly called for an independent investigation into US bank failures and strongly criticised Federal Reserve finance officials.The progressive Democrat from Massachusetts, who has positioned herself as a consumer protection advocate and trenchant critic of the US banking system, told CBS’s Face the Nation that she did not have faith in San Francisco Federal Reserve president Mary Daly or Fed chairman Jerome Powell.“We need accountability for our regulators who clearly fell down on the job,” Warren said, adding that it “starts with” Federal Reserve Chairman Jerome Powell, who she said “was a dangerous man to have in this position”.“Remember the Federal Reserve Bank and Jerome Powell are ultimately responsible for the oversight and supervision of these banks. And they have made clear that they think their job is to lighten regulations on these banks. We’ve now seen the consequences,” Warren added.Asked if she had “faith” in Daly, under whose jurisdiction SVB fell, Warren said flatly: “No, I do not.”In the wake of the collapse of Silicon Valley and Signature banks, the one-time presidential candidate has in recent days launched a broad offensive on politicians on both the left and the right who supported Trump-era deregulation of smaller US banks.Warren sent a letter to the inspectors general of the US treasury department, the Federal Deposit Insurance Corp (FDIC) and the Federal Reserve, urging regulators to examine the recent management and oversight of the banks which collapsed earlier this month.Last week, Warren unveiled legislation that would repeal that law and raise “stress-tests” on “too big to fail” banks from $50bn to $250bn. On Sunday, Warren also argued for raising federal guarantees on consumers deposits above the current $250,000.“Is it $2m? Is it $5m? Is it $10m? Small businesses need to be able to count on getting their money to make payroll, to pay the utility bills,” Warren said. “These are not folks who can investigate the safety and soundness of their individual banks. That’s the job the regulators are supposed to do.”Warren broadened out her criticism on NBC’s Meet the Press, calling for a stop to interest rates rises when central bankers meet next week and claiming that Powell was pushed by Congress to support deregulation in 2018.“Look, my views on Jay Powell are well-known at this point. He has had two jobs. One is to deal with monetary policy. One is to deal with regulation. He has failed at both,”, she said.US prosecutors are investigating the SVB collapse, a source familiar with the matter told Reuters last week, after the $212bn bank collapsed when depositors rushed to withdraw their money.A blame-game erupted, with some arguing that the bank’s apparent lack of adequate risk management, combined with deregulation and a sharp interest rate rises, had created an accident waiting to happen.US banks have since lost around half a trillion dollars in value. On Friday, President Joe Biden promised that bank customers deposits are safe and the crisis had calmed down.In Warren’s letter published Sunday, the senator also called for executives of the failed banks to be held to account.“The bank’s executives, who took unnecessary risks or failed to hedge against entirely foreseeable threats, must be held accountable for these failures,” Warren said. “But this mismanagement was allowed to occur because of a series of failures by lawmakers and regulators.” More

    • 138 Shares189 Views

      in US Politics

      Trump deregulated railways and banks. He blames Biden for the fallout

      by

      When a fiery train derailment took place on the Ohio-Pennsylvania border last month, Donald Trump saw an opportunity. The former US president visited East Palestine, accused Joe Biden of ignoring the community – “Get over here!” – and distributed self-branded water before dropping in at a local McDonald’s.Then, when the Silicon Valley Bank last week became the second biggest bank to fail in US history, Trump again lost no time in making political capital. He predicted that Biden would go down as “the Herbert Hoover of the modrrn [sic] age” and predicted a worse economic crash than the Great Depression.Yet it was Trump himself who, as US president, rolled back regulations intended to make railways safer and banks more secure. Critics said his attacks on the Biden administration offered a preview of a disingenuous presidential election campaign to come and, not for the first time in Trump’s career, displayed a shameless double standard.“Hypocrisy, thy name is Donald Trump and he sets new standards in a whole bunch of regrettable ways,” said Larry Sabato, director of the Center for Politics at the University of Virginia. “For his true believers, they’re going to take Trump’s word for it and, even if they don’t, it doesn’t affect their support of him.”The collapse of Silicon Valley Bank on 10 March and of New York’s Signature Bank two days later sent shockwaves through the global banking industry and revived bitter memories of the financial crisis that plunged the US into recession about 15 years ago.Fearing contagion in the banking sector, the government moved to protect all the banks’ deposits, even those that exceeded the Federal Deposit Insurance Corporation $250,000 limit for each individual account. The cost ran into hundreds of billions of dollars.The drama reverberated in Washington, where Trump’s criticism was followed by that of Republicans and conservative media, seeking to blame Biden-driven inflation or, improbably, to Silicon Valley Bank’s socially aware “woke” agenda. Opponents saw this as a crude attempt to deflect from the bank’s risky investments in the bond market and more systemic problems in the sector.The 2008 financial crisis, triggered by reckless lending in the housing market, led to tough bank regulations during Barack Obama’s presidency. The 2010 Dodd-Frank Act aimed to ensure that Americans’ money was safe, in part by setting up annual “stress tests” that examine how banks would perform under future economic downturns.But when Trump won election in 2016, the writing was on the wall. Biden, then outgoing vice-president, warned against efforts to undo banking regulations, telling an audience at Georgetown University: “We can’t go back to the days when financial companies take massive risks with the knowledge that a taxpayer bailout is around the corner when they fail.”But in 2018, with Trump in the White House, Congress slashed some of those protections. Republicans – and some Democrats – voted to raise the minimum threshold for banks subject to the stress tests: those with less than $250bn in assets were no longer required to take part. Many big lenders, including Silicon Valley Bank, were freed from the tightest regulatory scrutiny.Sabato commented: “The worst example is the bank situation because that is directly tied to Trump and his administration and changes made in bank regulations in 2018. Yes, some Democrats voted for it, but it was overwhelmingly supported by Republicans and by Trump who heralded it as the real solution to future bank woes.”The minority of Democrats who supported the 2018 law have denied that it can be directly tied to this month’s bank failures, although Bernie Sanders, an independent senator from Vermont, was adamant: “Let’s be clear. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill signed by Donald Trump that I strongly opposed.”Sherrod Brown, a Democratic senator for Ohio who introduced bipartisan legislation to improve rail safety protocols, drew a parallel between the banks’ collapse to rail industry deregulation lobbying that contributed to the East Palestine train disaster. “We see aggressive lobbying like this from banks as well,” he said.Trump repealed several Barack Obama-era US Department of Transportation rules meant to improve rail safety, including one that required high-hazard cargo trains to use electronically controlled pneumatic brake technology by 2023. This rule would not have applied to the Norfolk Southern train in East Palestine – where roughly 5,000 residents had to evacuate for days – as it was not classified as a high-hazard cargo train.But the debate around the railway accident and bank failures points to a perennial divide between Democrats, who insist that some regulation is vital to a functioning capitalism, and Republicans, who have long claimed to believe in small government. Steve Bannon, an influential far-right podcaster and former White House chief strategist, framed the Trump agenda as “the deconstruction of the administrative state”.Antjuan Seawright, a Democratic strategist, said: “The Republican party has gotten by for many years on this idea that less is better. However, we’re now learning in this country that, as America continues to mature, in some cases more is better, and more has to be how we get to better. Otherwise the mistakes can spin out of control and cause generations of people long-term damage.”Biden called on Congress to allow regulators to impose tougher penalties on the executives of failed banks while Warren and other Democrats introduced legislation to undo the 2018 law and restore the Dodd-Frank regulations. It is likely to meet stiff opposition from the Republican-controlled House of Representatives and even some moderate Democrats.Biden has also insisted that no taxpayer money will be used to resolve the current crisis, keen to avoid any perception that average Americans are “bailing out” the two banks in a way similar to the unpopular bailouts of the biggest financial firms in 2008.But Republicans running for the 2024 presidential nomination are already contending that customers will ultimately bear the costs of the government’s actions even if taxpayer funds were not directly used. Nikki Haley, the former governor of South Carolina, said: “Joe Biden is pretending this isn’t a bailout. It is.”Another potential 2024 contender, Senator Tim Scott, the top Republican on the Senate banking committee, also criticised what he called a “culture of government intervention”, arguing that it incentivises banks to continue risky behavior if they know federal agencies will ultimately rescue them.Larry Jacobs, director of the Center for the Study of Politics and Governance at the University of Minnesota, said: “This is familiar ideological territory. The battle lines between liberalism and a fake conservatism appear to be playing out here. But the tragedy of the situation is that the liberals are right.“You do need government to regulate finance and, when you don’t, you get mischief making and bank failures but that point cannot be made if you’ve got Donald Trump inventing reality. He’s demonstrated that facts and position taking don’t matter. It’s an extraordinary political strategy but it’s even more devastating to our whole political system and our media that this could be allowed.”This poses a huge messaging challenge for Democrats, who after the 2008 financial crisis came up against the Tea Party, a populist movement feeding off economic and racial resentments. Long and winding explanations about the negative impacts of Trump era deregulation are a hard sell compared to the former president’s sloganeering in East Palestine.Wendy Schiller, a political science professor at Brown University in Providence, Rhode Island, said: “Once again we see that Trump is taking advantage of the Achilles’ heel of the Democratic party by telling voters that the Democrats like big government because it bails out industries and it never provides a bailout for the little guy.”Democrats’ efforts to point out that Trump was responsible for deregulation are unlikely to cut through, Schiller added.“Any time it takes more than 10 seconds to explain something, you’re done in politics. This is why Trump has catchy phrases, sound bytes. He understands that all voters see is that rich people made a bad investment and then more rich people are making sure that their money’s available to them within three days, coming off the heels of all the closures during Covid, lost business, lost income, people struggling, inflation.“Democrats don’t want to call it a bailout but it is a bailout. The high visibility of this bailout smothers anything else the Democrats are doing for the average voter. It’s a perfect issue for the Republicans. It’s not new that the Republicans will deregulate an industry and then it collapses and the Democrats have to save it. Look at American political and economic history of the last 50 years: this is exactly what happens.” More

    • 125 Shares189 Views

      in US Politics

      Why did the $212bn tech-lender Silicon Valley bank abruptly collapse?

      by

      The collapse of Silicon Valley Bank continues to reverberate, hitting bank stocks, revealing hidden stresses, knocking on to Credit Suisse, and setting off a political blame-game.Why the $212bn tech-lender abruptly collapsed, triggering the most significant financial crisis since 2008, has no single answer. Was it, as some argue, the result of Trump-era regulation rollbacks, risk mismanagement at the bank, sharp interest rate rises after a decade of ultra-low borrowing costs, or perhaps a combination of all three?Federal investigations have begun and lawsuits have been filed and no doubt new issues at the bank will emerge. But for now, here are the main reasons experts believed SVB failed.Trump rollbacksThe Vermont senator Bernie Sanders argues that the culprit was an “absurd” 2018 law, supported by Congress and signed by Donald Trump, that undid some of the credit requirements imposed under the Dodd-Frank banking legislation brought in after the 2008 banking crisis.Dodd-Frank required that banks with at least $50bn in assets – banks considered “systemically important” – undergo an annual Federal Reserve “stress test” and maintain certain levels of capital as well as plans for a living will if they failed.SVB’s chief executive, Greg Becker, argued before Congress in 2015 that the $50bn threshold (SVB held $40bn at the time) was unnecessary and his bank, like other “mid-sized” or regional banks, “does not present systemic risks”.Trump said the new bill went a “long way toward fixing” Dodd-Frank, which he called a “job-killer”. But the non-partisan Congressional Budget Office (CBO) warned before the bill passed that raising the threshold would “increase the likelihood that a large financial firm with assets of between $100bn and $250bn would fail.” Joe Biden says he wants Trump’s rollbacks reversed.SVB’s managementThe bank didn’t have a chief risk officer (CRO) for some of 2022, a situation that’s now being looked at by the Federal Reserve, according to reports. SVB’s previous CRO, Laura Izurieta, left the company in October but stopped performing the role in April. Another was appointed in December.Early SVB shareholder lawsuits are said to be looking at the key vacancy, especially as the board’s risk committee was meeting frequently before the bank collapsed.“It means perhaps management was hiding something or didn’t want to disclose something, or had disagreements over the risks it was taking,” said Reed Kathrein, a lawyer specializing in shareholder lawsuits, to Bloomberg.“This isn’t greed, necessarily, at the bank level,” said Danny Moses, an investor who predicted the 2008 financial crisis in the book and movie The Big Short. “It’s just bad risk management. It was complete and utter bad risk management on the part of SVB.”SVB and Signature, the second mid-size bank to fail last week, have also been accused of prioritizing social justice over financial management. The Republican House oversight committee chairman, James Comer, called SVB “one of the most woke banks”.The narrative fed into a larger conflict over ESG, or environmental, social and corporate governance-driven investing, that has become a target of conservatives.But the bank’s loans to community and environmental projects were not central to its collapse nor are its diversity, equity and inclusion (DEI) policies dissimilar to other banks. The argument also fails to take into account all the banks that existed in 2008, before DEI or “woke” became a part of corporate or political discourse.Nevertheless the Florida governor, Ron DeSantis, continued on that theme, telling Fox News, that SVB was “so concerned with DEI and politics and all kinds of stuff. I think that really diverted from them focusing on their core mission.”Inflation and interest ratesSVB had benefited from from more than a decade of “zero money” interest rates as billions poured into the bank via tech venture capital. Looking for some kind of a return, it put the money into long-term US treasury bonds. But when interest rates started sharply rising last year, and depositors demanded higher returns, the bank was forced to sell some of those bonds at a loss. When news of that hit social media, tech investors panicked, triggering a classic bank run. From there, it took 36 hours for the second-biggest bank failure in US history to materialize.Before the collapses, investors had been expecting the Federal Reserve to raise interest rates by a quarter or half a percentage point when the governors meet next week. Now central bankers are in a bind: continue raising rates to tame inflation still running at 6% and risk another break in the financial system, or continue tightening money supply.The treasury secretary, Janet Yellen, gave a hint on Thursday when she told the Senate finance committee that “more work needs to be done” on inflation.What happens next?Financial jitters eased on Thursday after Wall Street rode to the rescue and propped up First Republic, another mid-sized bank whose customers were fleeing. But the respite may be brief.Goldman Sachs has raised its prediction for a recession in the next year to 35%, partly as a result of lending drops by regional banks.In the meantime it seems clear that investigators are likely to uncover more problems at the banks as their inquiries continue. Those revelations may trigger more concerns from depositors and investors.On Thursday, the Republican house financial services chairman, Patrick McHenry, said people should hold off on assigning blame for the collapse of SVB and Signature while Congress and watchdogs investigate.“When people jump to these conclusions at this stage of the game – a week in on this really stressed moment for our banking system – it’s unhelpful and quite politically hackish,” McHenry told Bloomberg. More

    • 288 Shares179 Views

      in US Politics

      Silicon Valley Bank said it was too small to need regulation. Now it’s ‘too big to fail’ | Rebecca Burns and Julia Rock

      by

      Silicon Valley Bank was supposedly the type of institution that would never need a government bailout – right until its backers spent three days on social media demanding one, and then promptly receiving it, after the bank’s spectacular collapse last week.Eight years ago, when the bank’s CEO, Greg Becker, personally pressed Congress to exempt SVB from post-2008 financial reform rules, he cited its “low risk profile” and role supporting “job-creating companies in the innovation economy”. Those companies include crypto outfits and venture capital firms typically opposed to the kind of government intervention they benefited from on Sunday, when regulators moved to guarantee SVB customers immediate access to their largely uninsured deposits.Fifteen years after the global financial crisis, the logic of “too big to fail” still prevails. The financial hardship of student debtors and underwater homeowners is a private problem – but losses sustained by titans of tech and finance are a matter of urgent public interest. Moral hazard for thee, but not for me.What’s more, SVB’s meteoric rise and fall serves as a reminder that many of the guardrails erected after the last crisis have since been dismantled – at the behest of banks like SVB, and with the help of lawmakers from both parties beholden to entrenched finance and tech lobbies.Before becoming the second-largest bank to fail in US history, SVB had transformed itself into a formidable influence machine – both in northern California, where it became the go-to lender for startups, and on Capitol Hill, where it spent close to a million dollars in a five-year period lobbying for the deregulatory policies that ultimately created the conditions for its downfall.“There are many ways to describe us,” SVB boasts on its website. “‘Bank’ is just one.”Indeed, SVB’s management appears to have neglected the basics of actual banking – the bank had no chief risk officer for most of last year, and failed to hedge its bets on interest rates, which ultimately played a key role in the bank’s downfall. In the meantime, the bank’s deposits ballooned from less than $50bn in 2019 to nearly $200bn in 2021.From the moment that Congress passed banking reforms through the 2010 Dodd-Frank law, SVB lobbied to defang the same rules that would probably have allowed regulators to spot trouble sooner. On many occasions, lawmakers and regulators from both parties bowed to the bank’s demands.One of SVB’s first targets was a key Dodd-Frank reform aimed at preventing federally insured banks from using deposits for risky investments. In 2012, SVB petitioned the Obama administration to exempt venture capital from the so-called Volcker Rule, which prevented banks from investing in or sponsoring private equity or hedge funds.​​“Venture investments are not the type of high-risk, ‘casino-like’ activities Congress designed the Volcker Rule to eliminate,” the bank argued to regulators. “Venture capital investments fund the high-growth startup companies that will drive innovation, create jobs, promote our economic growth, and help the United States compete in the global marketplace.”After the Obama administration finalized the Volcker Rule in 2014 without a venture capital carveout, SVB sought its own exemption that would allow it to maintain direct investments in venture capital funds, in addition to providing traditional banking services for roughly half of all venture-backed companies.One such firm was Ribbit Capital, a key investor in the collapsed cryptocurrency exchange FTX, which lauded SVB’s tech-friendly ethos in a 2015 New York Times profile. “You can go to a big bank, but you have to teach them how you are doing your investment,” Ribbit’s founder told the Times. At SBV, “these guys breathe, eat and drink this Kool-Aid every day.”In the transition between the Obama and Trump administrations, SVB got what it wanted: a string of deregulation, based on the idea that the bank posed no threat to the financial system.In 2015, Becker, the CEO, submitted testimony to Congress arguing that SVB, “like our mid-size peers, does not present systemic risks” – and therefore should not be subject to the more stringent regulations, stress tests and capital requirements required at the time for banks with $50bn or more in assets.Two years later, SVB was one of just a handful of banks to receive a five-year exemption from the Volcker Rule, allowing it to maintain its investments in high-risk venture capital funds.The deregulatory drumbeat grew louder in Congress, and in 2018 lawmakers passed legislation increasing to $250bn the threshold at which banks receive enhanced supervision – again, based on the argument that smaller banks would never prove “too big to fail”.The Federal Reserve chairman, Jerome Powell, supported the deregulatory push. Under Powell, a former private equity executive, the Fed in 2019 implemented a so-called “tailoring rule”, further exempting mid-size banks from liquidity requirements and stress tests.Even then, the banks’ lobbying groups continued to push a blanket exemption to the Volcker Rule for venture capital funds, which Powell advocated for and banking regulators granted in 2020.Then, in 2021, SVB won the Federal Reserve’s signoff on its $900m acquisition of Boston Private Bank and Trust, on the grounds that the post-merger bank would not “pose significant risk to the financial system in the event of financial distress”.“SVB Group’s management has the experience and resources to ensure that the combined organization would operate in a safe and sound manner,” Federal Reserve officials wrote.Since the financial crisis, SVB has reported spending more than $2m on federal lobbying efforts, while the bank’s political action committee and executives have made nearly $650,000 in campaign contributions, the bulk to Democrats.Among the highlights of this influence campaign was a 2016 fundraiser for the Democratic senator Mark Warner of Virginia, hosted by Greg Becker in his Menlo Park home. A few months later, Warner and three other Democratic senators wrote to regulators arguing for weaker capital rules on regional banks.Warner went on to become one of 50 congressional Democrats who joined with Republicans to pass the 2018 Dodd-Frank rollback. When asked this week about his vote, Warner said: “I think it put in place an appropriate level of regulation on mid-sized banks … these mid-sized banks needed some regulatory relief.”In the wake of SVB’s collapse, Republicans have not renounced their votes for deregulation – nor have most of the Democrats who joined them, even as Biden is promising a crackdown.Warner took to ABC’s This Week on Sunday to defend his vote; Senator Jeanne Shaheen, the Democrat from New Hampshire, told NBC on Tuesday that “all the regulation in the world isn’t going to fix bad management practices”. Senator Jon Tester, the Democrat from Montana and a co-sponsor of the 2018 deregulatory law, even held a fundraiser in Silicon Valley the day after the SVB bailout was announced.Unless they reverse course, the Silicon Valley Bank bailout could prove politically disastrous for Democrats, who just oversaw the rescue of coastal elites in a moment of ongoing economic pain for everyone else.The good news is that there are straightforward steps that Democrats can take to start fixing things.For example: Senator Elizabeth Warren’s legislation to repeal Trump-era financial deregulation.Democrats can also revisit the areas where Dodd-Frank fell short, including stronger minimum capital requirements, and consider longstanding proposals to disincentivize risky behavior by banks by reforming bankers’ pay. And they should demand that Powell recuse himself from the Federal Reserve investigation of recent bank failures and take a hard look at whether his disastrous record merits outright dismissal under the Federal Reserve Act, which allows the president to fire a central bank chair “for cause”.And yet even now – amid the wreckage of deregulation – these and other measures to better regulate the banks may still be nonstarters among both the Republicans and corporate Democrats who voted for the regulatory rollbacks and have so far shown little sign of repentance.The words of the Illinois Democratic senator Dick Durbin still ring true, 14 years after the financial crisis.“The banks – hard to believe in a time when we’re facing a banking crisis that many of the banks created – are still the most powerful lobby on Capitol Hill,” he said back in 2009. “And they frankly own the place.”If that remains true today, the possibility of change looks grim.
      Rebecca Burns and Julia Rock are reporters for the Lever, an independent investigative news outlet, where a version of this article also appeared More

    • 138 Shares169 Views

      in US Politics

      Low-income Americans face a ‘hunger cliff’ as Snap benefits are cut

      by

      Gina Melton is facing a dilemma. Like millions of other Americans, Melton and her family relied on food assistance benefits boosted by Congress to help them through the pandemic. Now that extra cash is gone.The reduction has hit them hard. Three of her family members are disabled and one of her daughters works to take care of them through an agency. They had already relied on credit cards to pay for medical equipment that wasn’t covered by the federal health insurance schemes Medicare or Medicaid but have had to stop paying a couple of them in order to afford food.“When you have to choose between feeding your family and paying a credit card bill, you have to choose food,” said Melton, 62.Around 42 million Americans are currently enrolled in Supplemental Nutrition Assistance Program (Snap) benefits. Congress increased Snap benefits in response to the Covid-19 pandemic in March 2020. The last extra payments went out at the end of February in the remaining 32 states that were still issuing them, in addition to the District of Columbia, Guam and the US Virgin Islands.The emergency allotments were authorized in tandem with the Covid-19 emergency declaration in March 2022, but in December 2022, Congress passed a law to end the allotments.The lapse in the additional benefits will reduce Snap allotments for the average recipient by $90 a month, with some households losing $250 a month or more. Older adults at the minimum benefit level will see their monthly Snap benefits drop from $281 a month to $23.Though Melton’s husband, a diabetic, is still recovering from a recent surgery, he has been considering going back to work part time at the age of 65 as the family struggles to afford basic necessities, including healthy food. They’ve cut back on food purchases and buy what’s on sale or in reduced-price bins.“The extra food allotment was helping us a lot,” said Melton. “We’ve started shopping at lower-priced stores that don’t bag your groceries, but for a disabled person like myself, that requires me to go with a helper. We’ve also cut back on some more expensive necessities and are relying on the local food pantry more.”The end of the expanded benefits comes at a time when US consumer debt has been on the rise, with 20.5 million Americans currently behind on their utility payments and nearly 25 million behind on credit card, auto loan or personal loan payments, the highest number since 2009. Low-wage workers in the US, who make less than $20 an hour, have experienced drops in wage growth compared with other workers in recent months.Food prices have and are expected to continue to significantly rise in 2023 as well. The US Department of Agriculture estimated that all food prices will increase by 7.9% in 2023 – and they were already 9.5% higher in February 2023 compared with February 2022.With so many Americans receiving Snap benefits because of low wages, unemployment and underemployment, the sudden end of the emergency allotment has been characterized as a “hunger cliff”.Ellen Vollinger, Snap director for the nonprofit Food Research and Action Center, said: “The cliff is aptly named because this a very abrupt change in what people are going to have in their food budget and it’s affecting tens of millions of people.“When the federal government doesn’t provide as much support for food, it doesn’t mean that hungry people all of a sudden are better off, or no longer need assistance, or they go away. The hunger is still there, people are still there, the need is there, but the federal government is too abrupt in shifting the burden and costs of dealing with that downstream, to states [and] localities, and puts a greater burden on charities.”Vollinger noted that the end of emergency allotments leaves low-income families facing difficult choices around food, from forgoing meals and purchasing less to buying cheaper food.“There’s a lot of stress, that’s why we call it a hunger cliff. It’s very precipitous,” she added.Food banks have been bracing for a surge in demand as the expanded Snap benefits expire, with state agencies directing recipients to food pantries to help cope with the reduction in benefits.Studies have shown that the extra payments worked. The Urban Institute found that the increased Snap benefits during the Covid-19 pandemic kept 4.2 million Americans out of poverty in the fourth quarter of 2021, reducing poverty by 9.6% and child poverty by 14% in states with emergency allotments. They also have a wider economic benefit. Every $1 invested in Snap benefits yields between $1.50 and $1.80 in economic activity during economic downturns.A 2022 survey conducted by Propel found that among Snap recipients, there was a significant level of higher food insecurity in states where emergency allotments were cut off. In a January 2023 survey, there was an increase in the number of Snap recipients who reported skipping meals, eating less, visiting food pantries or relying on family or friends for meals compared with December 2022.The end of the emergency Snap allotments also coincides with a push from Republicans in Congress to cut regular Snap benefits this year, despite the majority of Americans having favorable views of the benefits. A January 2023 survey conducted by Purdue University found that seven out of 10 respondents supported permanent expansions of the Snap program.But an expansion looks very unlikely in the current Congress. In the meantime, recipients are facing tough choices.“I just received the last one last week,” said Patricia Ameral, 67, of Massachusetts, referring to the Covid emergency benefits. “I am certain it will mean the difference between consuming less fresh produce and less meat, fresh or frozen.” More

    • 150 Shares169 Views

      in US Politics

      US banks launch $30bn rescue of First Republic to stem spiraling crisis

      by

      Wall Street’s giants moved to end the US’s spiraling banking crisis on Thursday by agreeing to prop up troubled First Republic, a mid-sized bank whose shares have been pummeled amid a wider banking turmoil.Bank of America, Goldman Sachs, JP Morgan and others will deposit $30bn in First Republic, which has seen customers yank their money following the collapse of Silicon Valley Bank (SVB) and fears that First Republic could be next.“The actions of America’s largest banks reflect their confidence in the country’s banking system. Together, we are deploying our financial strength and liquidity into the larger system, where it is needed the most,” the banks said in a joint statement on Thursday.The big banks have received billions in deposits from smaller, regional banks as the banking crisis has spooked their customers. US authorities swooped in to take control of SVB and New York’s Signature bank last weekend after frightened customers pulled their deposits.Banks and regulators are hoping that the action will act as a firewall by protecting First Republic and stopping the crisis spreading to other smaller banks.Shares in First Republic – a San Francisco-based bank that largely caters to wealthier clients including Facebook co-founder Mark Zuckerberg – had fallen about 70% since the news of SVB’s collapse. They fell another 22% on Thursday before the bailout but ended the day up nearly 10%.In a joint statement, US treasury secretary Janet Yellen, Federal Reserve chair Jay Powell and senior regulators said: “This show of support by a group of large banks is most welcome, and demonstrates the resilience of the banking system.”Ahead of the news Yellen assured Congress on Thursday that the US banking system was “sound”.“I can reassure the members of the committee that our banking system is sound, and that Americans can feel confident that their deposits will be there when they need them,” she told the Senate finance committee.SVB had a high percentage of “uninsured” deposits – deposits above the $250,000 government insured limit. SVB’s uninsured deposits accounted for 94% of its total. First Republic’s percentage of uninsured deposits was far lower – at 68% according to S&P Global – but was high enough to worry investors and depositors with more than $250,000 in accounts at the bank.The unprecedented rescue plan will see most of the US’s largest banks making uninsured deposits into First Republic. Bank of America, Citigroup, JP Morgan Chase and Wells Fargo are each making a $5bn deposit into First Republic. Goldman Sachs and Morgan Stanley are each making deposits of $2.5bn, and BNY Mellon, PNC Bank, State Street, Truist and US Bank are each making a deposit of $1bn, for a total deposit from the eleven banks of $30bn.The news came as the Swiss central bank issued a $53.7bn loan to Credit Suisse to stem its own crisis of confidence. The long-troubled bank’s share price had collapsed after its largest shareholder, Saudi National Bank, said it was unable to provide more financing to Credit Suisse. More