It’s been a whirlwind for the banking system over the past few days.
On Friday, regulators shut down the California-based Silicon Valley Bank after a chaotic few days of failing to raise capital led a flood of depositors to withdraw their money from the bank. The speed at which SVB shut its doors was shocking and became what is now known as the second-largest bank failure in the US, after the Washington Mutual closure during the 2008 financial crisis.
To add to the shock, regulators shut down crypto-friendly Signature Bank on Sunday, but the US Treasury, Federal Reserve, and Financial Deposit Insurance Corporation released a joint statement on Sunday saying that depositors would be “fully” protected from financial losses.
Massachusetts Sen. Elizabeth Warren wrote in a Monday opinion piece for The New York Times that what happened to SVB is “the direct result of leaders in Washington weakening the financial rules,” referring to former President Donald Trump’s rollback of provisions within the Dodd Frank Act, which protected consumers from actions by big banks.
“On Sunday night, regulators announced they would ensure that all deposits at S.V.B. and Signature would be repaid 100 cents on the dollar. Not just small businesses and nonprofits, but also billion-dollar companies, crypto investors and the very venture capital firms that triggered the bank run on S.V.B. in the first place — all in the name of preventing further contagion,” Warren wrote.
“Regulators have said that banks, rather than taxpayers, will bear the cost of the federal backstop required to protect deposits. We’ll see if that’s true,” she continued. “But it’s no wonder the American people are skeptical of a system that holds millions of struggling student loan borrowers in limbo but steps in overnight to ensure that billion-dollar crypto firms won’t lose a dime in deposits.”
Warren has long pushed for stricter oversight over big banks, along with protections for student-loan borrowers. Regulators’ protections for SVB customers come as millions of borrowers are waiting for the Supreme Court to decide whether President Joe Biden’s plan to cancel up to $20,000 in student debt is legal. With 45 million Americans holding $1.7 trillion in student debt, they’ve never gotten relief at the scale Biden proposed, and Warren and other Democrats are pushing for this loan forgiveness to help borrowers recover from the financial impacts of the pandemic.
Republican lawmakers have blasted student-debt relief as a “bailout,” with some calling for the relief to be blocked in a potential deal to raise the debt ceiling.
It’s unclear whether borrowers will end up getting the “bailout” GOP lawmakers oppose, but for now, Warren wants to ensure big banks won’t be able to escape regulation.
“These bank failures were entirely avoidable if Congress and the Fed had done their jobs and kept strong banking regulations in place since 2018,” Warren wrote. “S.V.B. and Signature are gone, and now Washington must act quickly to prevent the next crisis.”