Sen. Elizabeth Warren on Sunday called for an investigation into the Federal Reserve System over weakened regulatory processes she said led Silicon Valley Bank and Signature Bank to implode.
The demand from the Massachusetts Democrat — who sits on the Senate banking committee — came as a new study found that nearly 200 other US banks were at risk of failing if depositors made a run on their holdings, because they hold large portions of their assets in interest-rate sensitive financial instruments like government bonds and mortgage backed securities.
SVB, the nation’s 16th largest bank, and Signature, had invested deposits in higher-yield, long-term mortgage-backed securities and bonds with pandemic-era low interest rates, only to see the value of the assets sink rapidly when the Fed hiked rates earlier this month.
“Let me describe what I see as the problem; starting back in 2016 or so, these multi-billion dollar banks like SBV … came to Washington and kept saying ‘lighten the regulations on us. We’re just like tiny little banks, so ease up on the regulations,'” Warren said on ABC’s “This Week.”
“Donald Trump then ran for president promising he would ease up on the regulations on these multi-billion banks. He then was elected president and he put in a lot of regulators who eased up on banking regulations.”
Warren noted that Congress in 2018 passed a bipartisan regulation rollback of the banking industry and “what happened is what we should have predicted.”
“These banks … loaded up on risk, they boosted their short term profits, they gave themselves huge bonuses and big salaries and they exploded their banks,” the senator said.
Warren called for an independent investigation of the Fed and the “whole regulatory system,” and demanded the reversal of the weakened oversight system.
She also called for CEOs to be held accountable and forfeit the bonuses and large salaries seen in the wake of the bill’s passing, while adding that criminal charges stemming from a Department of Justice investigation were possible.
“We’ve gotta say overall that we can’t keep repeating this approach of weakening the regulations over the banks than stepping in when the giant banks get into trouble,” Warren said.
She also called for failed CEO’s like SBV’s Greg Becker to be “banned from banking forever.”
Warren’s demands came as the Federal Deposit Insurance Corp said it would step in to guarantee deposits lost in the implosions, in what some say has amounted to a bailout.
The FDIC typically only guarantees deposits of up to $250,000.
SBV was the biggest lender to fail since the 2008 financial crisis, and its historic downfall was second in scope only to Washington Mutual that year.
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