Failure of Silicon Valley Bank has Idaho Sen. Mike Crapo’s name written all over it | Opinion

The failure of Silicon Valley Bank does not seem to have been hard to see coming. It had lots of large deposits from venture capitalists who could choose to cash them in at a moment’s notice, but it invested huge chunks of those deposits in assets that couldn’t be cashed in for years.

This is the kind of situation that should have been easy to detect — if regulators were looking.

But they weren’t looking. And you can thank Sen. Mike Crapo for that.

Crapo was the lead author of the 2018 bill to exempt lots of very large banks from regulatory oversight measures such as stress testing that had been imposed in the wake of the 2008 financial crisis.

The old rule in the Dodd-Frank legislation held that any institution with $50 billion in assets was subject to heightened scrutiny because its failure could pose a risk to the overall system. Crapo’s bill raised that limit to $250 billion, jumping right over Silicon Valley Bank (about $212 billion in assets) and Signature Bank (about $110 billion in assets), both of which recently failed.

It’s not quite right to say that it was predictable that Crapo’s bill would significantly raise the risk of bank failures that put the overall system in jeopardy. It’s more accurate to say that it was predicted — prominently and repeatedly.

“A bill that began as a well-intentioned effort to satisfy some perhaps legitimate community bank grievances has instead mushroomed, sparking fears that Washington is paving the way for the next financial meltdown,” wrote David Dayen in an in-depth article for The Intercept published shortly before Crapo’s bill passed.

A guest column in the Statesman published just after the bill passed suggested it be re-titled the “Big Banking Love Fest, Risk the Economy and Burn the Consumer Act.” An excellent suggestion in hindsight.

Crapo has made his career as Wall Street’s best friend on Capitol Hill. That might be normal for a senator from New York, where Wall Street is located, but Crapo is from Idaho, where the entire banking sector holds less than $11 billion in total assets, according to FDIC records.

D.L. Evans Bank, the largest FDIC-insured bank headquartered in Idaho, would have to grow nearly 17 times its current size to hit the old $50 billion Dodd-Frank threshold. So Crapo’s bill did a whole lot of nothing for Idaho’s relatively small community banking sector.

But this fits a long pattern for Crapo.

The traditional role for a senior member of the Idaho delegation is to seek out a role related to something with a major presence in Idaho — agriculture, federal lands, nuclear energy, etc. — not something like banking. That allows a senator or representative to aid a major constituency back home.

But banking is where the big campaign contributions are, and Crapo has followed the money, setting his sights early on the Senate Banking Committee.

So it’s also predictable what side of banking issues he’s landed on: not the side of customers, and not on the side of Idaho’s community banks, but on the side of massive banks.

When massive banks prosper, their profits grow. When they fail, the effects bleed out across the country.

The effects of SVB’s failure are hitting Crapo’s hometown of Idaho Falls, for example.

“Silicon Valley Bank imploding has had a serious, destabilizing effect on our business,” said Michael Barber, COO of Accendero Software, a tech firm based in Idaho Falls. “As an organization that works with numerous venture-backed firms that banked with SVB, we are dealing with significant uncertainty on multiple incoming payment accounts. This uncertainty has put our quarter two hiring plans on permanent hold and could precipitate more serious issues for us if there are operational delays in our clients that cause their accounts payable to be significantly delayed.”

It would be nice if a local company like that had its senior senator looking after its interests. But local companies generally don’t have the capacity to donate over $880,000 to Crapo’s campaign, as the securities and investment industry has done since 2017.

And you have to have priorities.

Bryan Clark is an opinion writer with the Idaho Statesman based in eastern Idaho.