Senate Democrats who supported a rollback of regulations on mid-sized banks under President Donald Trump defended their vote despite the collapse of two key banks last week that set off fears of another costly financial crisis.
“The reason why I voted for that bill is that my community banks really needed it,” Sen. Tim Kaine (D-Va.), one of 17 Senate Democrats who voted for the Trump-era legislation, told HuffPost on Tuesday.
The 2018 bill repealed parts of the Dodd-Frank Act, which Congress passed in the wake of the 2008 financial crisis in order to prevent the government from having to do another massive bank bailout. The bill raised the threshold for stricter regulation from banks with $50 billion in assets to only those with $250 billion.
The two banks that failed last week — Silicon Valley Bank and Signature Bank — had less than $250 billion in assets. (BuzzFeed, HuffPost’s parent company, banked with SVB.)
Critics of the 2018 bill argued that Congress directly enabled the recent bank failures when lawmakers allowed federal regulators to ease requirements that banks hold a certain amount of assets in the case of a run on deposits.
“Connect the dots,” Sen. Elizabeth Warren (D-Mass.) said. “The 2018 rollback permitted the banks to take on more risks in order to boost their profits. So what did they do? They took on more risks, boosted their profits, gave their executive big bonuses, and then blew the banks up.”
But Democrats who supported the 2018 law now say they don’t regret doing so, reiterating that small and rural financial institutions in their states, which lend to Main Street businesses, needed the regulatory relief in order to survive.
“That was hurting local communities and leading, in particular, rural and underserved communities to be less served,” Kaine said.
The Virginia Democrat questioned whether other factors contributed to the recent bank failures, including a “social media-fueled” run on deposits and mismanagement in the wake of high interest rates.
“We should find out what went wrong, why did it go wrong, how do we fix it, how do we make sure it doesn’t happen again,” added Sen. Tom Carper (D-Del.), who also voted for the 2018 bill.
Sen. Michael Bennet (D-Colo.) also said he didn’t regret voting for easing regulations on banks, adding that “we have to do the analysis now to see what actually happened” at Silicon Valley Bank.
“The reason why I voted for that bill is that my community banks really needed it.”
- Sen. Tim Kaine (D-Va.)
Congress was warned in 2018 that the regulatory rollback would increase the odds that a mid-sized financial institution would fail, potentially exposing the government to added costs. Republicans, along with some Democrats, ignored those warnings.
Warren and Rep. Katie Porter (D-Calif.) introduced legislation on Tuesday that would restore the original Dodd-Frank regulatory provisions on mid-sized banks, but the measure isn’t likely to go anywhere.
“Nothing that came out of [the 2018 legislation] was in any way a cause of what happened here,” Sen. Mike Crapo (R-Idaho) said. “There is no need for regulatory reform. The regulators have full authority to do the necessary regulation.”
The chaos in the banking industry is also reverberating on the campaign trail.
Progressive Rep. Ruben Gallego, who is challenging Democrat-turned-independent Sen. Kyrsten Sinema in Arizona in 2024, slammed the incumbent at a press conference today for backing the deregulation bill.
“Simply put, she voted to give the banks free rein. And I did not.” Gallego said while standing outside of Silicon Valley Bank’s offices in the Phoenix suburb of Tempe. “The Silicon Valley Bank collapse is a direct result of her choice.”
Gallego’s campaign noted that three long-time lobbyists for the bank had given Sinema the maximum allowable campaign donation shortly before the vote.
The five-year gap between the vote and SVB’s collapse means many of the same Democrats who voted for the bill in 2018 as a way to burnish their bipartisan credentials and win over the banking industry before their reelection bids — including Sens. Jon Tester (D-Mont.) and Joe Manchin (D-W. Va.) — are now facing tough races for reelection again. And that’s complicating the Democratic response to the crisis.
“I don’t say my party is innocent in this,” Sen. Sherrod Brown (D-Ohio), then and now the top Democrat on the Senate Banking Committee, told Bloomberg Radio on Tuesday. “There are some that don’t fight hard enough. I’m not going to mention names, but there are some that don’t.”
The Biden White House, for instance, is not typically shy about blaming the Trump administration’s deregulation efforts for disasters — see its response to the train derailment in East Palestine, Ohio.
In his remarks on the crisis on Monday, however, President Joe Biden avoided mentioning the Trump-era rollback, perhaps as a nod to the complicated politics of a White House blitz against a law supported by 17 Senate Democrats.
Gaggling with reporters on Air Force One on Monday, White House press secretary Karine Jean-Pierre briefly mentioned the law, but did not make clear whether Biden would support putting the regulations back in place, promising there would be “conversations with experts and regulators.”
“The last administration rolled back some of those tough requirements,” she said after mentioning that Biden was vice president when Dodd-Frank was originally put in place. “And so, as you saw this morning and you heard from the president, he called on both Congress and bank regulators to strengthen the rules to make it less likely that this kind of bank failure can happen again, to protect American jobs, small businesses.”