The crisis that struck the US banking system over the weekend had many causes, but one factor was the 2018 decision to ease rules that keep big-but-not-quite-mega-banks out of trouble. johnsfoley explains.
U.S. President Joe Biden delivers remarks on the banking crisis after the collapse of Silicon Valley Bank and Signature Bank, in the Roosevelt Room at the White House in Washington, D.C., U.S. March 13, 2023. REUTERS/Evelyn Hocksteinhad many causes. But one factor was the 2018 decision to ease rules that keep big-but-not-quite-mega-banks out of trouble. Among its supporters were officials who still serve today, like Federal Reserve Chair Jay Powell.
After the 2008 crisis, Congress bound up the financial system with rules to prevent bank death spirals. Five years ago on Tuesday, the Senate passed a bill to water them down. The idea was to avoid the one-size-fits-all problem. The legislation known as the Dodd-Frank Act was, politicians and lobbyists contended, strangling smaller and less complex lenders by treating them like the giant institutions that jeopardized the global economy a decade earlier.
The major financial authorities – the Fed, the Federal Deposit Insurance Corp and the Office of the Comptroller of the Currency – applied the lighter touch. The Fed was permitted to retain tough rules for banks with assets over $100 billion, but decided not to. Among the proponents of the central bank’s approach were Powell and his then-deputy Randall Quarles. Among those who opposed it were
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