The top row
Some far-right Republicans have blamed the downfall of Silicon Valley Bank and Signature Bank on what they called “woke” social and environmental policies, a dubious and unproven theory being advanced as some House Republican leaders express confidence in the Biden administration’s moves to avert the fallout. . and urge members to avoid any strong claims.
US Rep. Marjorie Taylor Greene (R-GA) speaks to reporters as she leaves the US Capitol … [+]
Basic elements
In the days after the collapse of Silicon Valley Bank, Republicans such as Rep. Marjorie Taylor Greene (Ga.), Rep. James Comer (Ky.), Sen. Josh Hawley (Mo.), Rep. Ronny Jackson (Texas) and the governor of Florida. Ron DeSantis (Fla.) focused his criticism on what they called “woke” investment and diversity, equity and inclusion policies in banking, with DeSantis speculating on Fox News that these initiatives “really detract from those that focus on their main mission”.
Greene criticized the federal government for promising to make bank depositors whole (the money the Biden administration said would come from the banks, not taxpayers), arguing that SVB “compensated for failed funds that offered “sustainable funding and carbon neutral operations to support a healthier planet,” she he tweeted.
Greene’s tweet is an apparent reference to SVB’s commitment to be 100% carbon neutral by 2025 and invest $5 billion by 2027 to help clients build sustainable businesses, according to the 2022 Environmental, Social and Governance Report .
Former Vice President Mike Pence also accused SVB of engaging in “risky borrowing and lending on behalf of California’s donor class while committing billions of dollars to fuel projects to combat climate change,” he wrote in a Daily Mail op-ed on Tuesday.
Experts said there is no evidence that those investments failed and led to the bank’s collapse, and Silicon Valley Bank is far from the only financial institution these days that weighs environmental, social and governance (commonly known as ESG) practices when taking investment decisions—although other banks have drawn sharp criticism from Republicans for the practice.
Instead, most experts have linked SVB’s collapse to a rise in interest rates, which has hit the value of the bank’s long-term US Treasuries and caused many of its technology-focused clients to withdraw deposits due to tight venture capital funding. danger.
House Speaker Kevin McCarthy (R-Calif.) has yet to strongly criticize the Biden administration over the crisis, and hours before the Fed announced a plan to protect SVB depositors on Sunday, he expressed confidence in the federal government’s “tools” to address the crisis in an interview with Fox News, which could have been a move to boost investor confidence.
Several Republicans have spoken out in support of the administration’s bailout plan: House Financial Services Committee Chairman Patrick McHenry (RN.C.) told Paddsbowl Monday night that the Biden administration “acted quickly and boldly . . . to resolve two banks,” while Sen. Mitt Romney (R-Utah) he tweeted that federal bank regulators made the “right decision.”
GOP leadership urged its members to walk a fine line in their rhetoric around bank failures: The chairman of the conservative Republican Study Committee, Rep. Kevin Hern (R-Okla.) “discourages creating a narrative that is not accurate or justified”. on a members-only call Monday, Republican sources said multiple stores.
Key background
The FDIC shut down Silicon Valley Bank on Friday and Signature on Sunday, marking the second and third largest bank failures in history. SVB’s decline has been attributed to its focus on the struggling tech startup industry and rising interest rates. New York-based Signature Bank, the main lender to the troubled cryptocurrency industry, closed after shares fell nearly 25% on Friday and customers quickly withdrew their deposits. The FDIC promised to make all SVB and Signature depositors whole, even if their deposits exceed the $250,000 normally insured by the government, a sweeping action the FDIC justified by citing “systemic risk” to the banking system. Bipartisan concerns have arisen about this promise to support all SVB and Signature depositors. Sen. Bernie Sanders (I-Vt.) told the Washington Post that “if there is to be a bailout of Silicon Valley Bank, it will have to be 100% funded by Wall Street,” while Greene he tweeted “The fools who ran the bank woke up and nearly went under, but the Democrats and the Fed stepped in to make sure their awake SVB donors didn’t go under.”
Tangent line
Democrats blamed the crisis on Trump-era regulatory shakeups that freed SVB and other small and medium-sized banks from regular stress tests and capital and liquidity standards. The Trump-era reversals, which passed in 2018 with the support of dozens of Democrats, amended the 2010 Dodd-Frank Act by moving the threshold for banks to face additional scrutiny from $50 billion in assets to $250 billion, with the conviction that banks of SVB’s size (with less than $250 billion) should not be classified as “systemically important financial institutions” because they did not pose a threat to financial stability. Banking experts have said tighter regulations implemented as part of the 2010 Dodd-Frank Act — a response to the 2008 financial crisis — may have forced banks to take more precautions, but banks’ reliance on the troubled sector of tech startup , along with rising interest rates that reduced the value of its investments, were also factors in its collapse
On the contrary
Some Democrats also blamed the Federal Reserve and its chairman, Jerome Powell, for not subjecting banks like SVB to enough scrutiny. Elizabeth Warren (D-Mass.), a longtime critic of Powell, said he should recuse himself from the agency’s internal investigation into its role in the collapse of SVB and accused the Fed of allowing financial institutions to “load the risk ». There is some bipartisan consensus on targeting the Fed: Republican Senate Banking Committee member Bill Hagerty (R-Tenn.) told Bloomberg that the Fed’s San Francisco office (for which SVB CEO Greg Becker served as director until Friday) should be held accountable, while Rep. French Hill (R-Ark.) and Rep. Andy Barr (R-Ky.) expressed similar concerns to Punchbowl.
Chief critic
McCarthy, discussing the debt ceiling negotiations with the White House on Fox News, linked the rising interest rates that contributed to SVB’s collapse to rising public debt, arguing that the debt contributed to the rise in inflation that caused the Fed to raise interest rates. “High debt brings inflation and what happens to inflation? You see with this bank—interest rates are going up,” he said, teasing what could become an emerging talking point for Republicans.
What to watch out for
Warren and Rep. Katie Porter (D-Calif.) introduced legislation Tuesday that would reverse the 2018 changes. However, any new regulations face a long chance of passing the GOP-controlled House. Senate Banking Committee Ranking Member Tim Scott (R.S.C.) said “the intervention does nothing” to stop banks from relying on the government as a fallback for “excessive risks,” while McHenry (N.C.) said he has “confidence” in the “protections already in place.”
Further reading
Democrats Blame SVB Collapse on Trump-Era Regulatory Upheavals—But GOP Opposes Tougher Rules (Forbes)
“Head Fake Rally”? Dow jumps 400 points as bank stocks recover $37 billion (Forbes)
How Trump’s Deregulation Sowed the Seeds for Silicon Valley’s Bank Collapse (Forbes)