Failures of Silicon Valley, Signature banks leads to calls for banking reform, increased oversight
In the wake of the collapse of two banks over the weekend, consumer advocates are calling for both banking reform and increased oversight by key regulators. The goal, according to these advocates, is to protect consumers from risks in the financial marketplace.
Both Silicon Valley Bank and Signature Bank failed over the weekend - and while the federal government has stepped in to address the concerns and financial well-being of depositors, consumer advocates are warning that more regulation is needed to prevent similar failures going forward.
“Rolling back common-sense safeguards to ensure banks were liquid enough to pay their depositors was clearly the wrong decision,” said Renita Marcellin, the advocacy and legislative director at Americans for Financial Reform. “These banks would have faced a tougher risk management framework under the original Dodd-Frank law. But bipartisan majorities in Congress weakened the law in 2018 and Trump-appointed regulators took it even further.”
Americans for Financial Reform made the following recommendations in the wake of the bank collapses:
"Congress should repeal the 2018 legislation and take up additional measures to protect financial stability and the public interest. But regulators should not wait; they can take steps now to make the system more stable while protecting consumers and investors. They should strengthen bank capital and liquidity rules and make use of the Financial Stability Oversight Council and the Office of Financial Research to identify emerging risks, designate firms as systemically important, and properly regulate both banks and non-banks. They should also implement the Dodd-Frank mandate to limit executive compensation."
Marcellin noted that the two bank failures point to the need for immediate action on consumer protection in banking:
“The collapse of these banks gives the Fed all the more reason to resist the self-interested arguments from banks and their allies Congress,” Marcellin said. “No one should give these arguments a sympathetic ear. Banks should not receive government backstopping when things go wrong and simultaneously lobby for weaker rules. Ordinary Americans are not afforded the same benefits when their finances are in the red.”