Sen. Elizabeth Warren blames Congress for Silicon Valley Bank failure, says it weakened oversight

Sen. Elizabeth Warren is pointing the finger squarely at Congress in the fault-finding over the failure of Silicon Valley Bank, which sent tremors through the financial system.

Ms. Warren, Massachusetts Democrat and a champion of stricter oversight of the financial sector, blamed the chaos on a Trump-era measure that weakened protections of the Dodd-Frank law that was passed to protect consumers in the wake of the 2008 financial collapse.

“No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Ms. Warren, who ran for president in 2020, wrote in a New York Times opinion piece. “In 2018, the big banks won. With support from both parties, President Donald Trump signed a law to roll back critical parts of Dodd-Frank.”

SVB failed in recent days after a big run on deposits amid a broad tech-sector downturn, and a second institution, Signature Bank, also was shut down.

The failures prompted the Biden administration over the weekend to safeguard depositors’ money. On Monday, Mr. Biden said Americans should “have confidence that the banking system is safe.”

Yet Ms. Warren argues the situation could have been avoided if Congress hadn’t weakened oversight of liquidity rules and capital requirements. Under the 2018 law, banks with less than $250 billion in assets were exempted from stress tests from the Fed. 

SVB had about $200 billion in assets, making it a large institution but under the threshold.

“They would have been required to conduct regular stress tests to expose their vulnerabilities and shore up their businesses,” Ms. Warren wrote. “But because those requirements were repealed, when an old-fashioned bank run hit S.V.B‌., the‌ bank couldn’t withstand the pressure — and Signature’s collapse was close behind.”

Ms. Warren, who took credit for opposing the 2018 legislation and warning about the potential fallout, said Congress should restore Dodd-Frank rules and take a “look under the hood” at where other banking dangers could be lurking.

She also said bank executives must be held accountable.

“Where needed, Congress should empower regulators to recover pay and bonuses. Prosecutors and regulators should investigate whether any executives engaged in insider trading ‌or broke other civil or criminal laws,” she wrote. “These bank failures were entirely avoidable if Congress and the Fed had done their jobs and kept strong banking regulations in place since 2018. S.V.B. and Signature are gone, and now Washington must act quickly to prevent the next crisis.”