What lawmakers think should happen next after Silicon Valley Bank’s failure

D. Hunter Schwarz
·3 min read
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The Capitol is seen through a window in the Russell Senate Office Building as policymakers wrestle with fallout from the failure of Silicon Valley Bank, in Washington, March 15, 2023. While President Joe Biden called Monday on Congress to strengthen the rules for banks to prevent future failures, lawmakers are divided on whether any legislation is needed.

Failures at Silicon Valley Bank and Signature Bank have politicians pointing fingers at the Federal Reserve, while some have indicated they’re open to raising the federal insurance limit on bank deposits.

Since the U.S. government said it would guarantee all depositors at Silicon Valley Bank and Signature Bank above the $250,000 limit insured by the Federal Deposit Insurance Corp., or FDIC, lawmakers from both parties said this weekend they’d consider raising the limit.

“I think that lifting the FDIC insurance cap is a good move,” Sen. Elizabeth Warren, D-Mass., a member of the Senate Finance and Banking Committees said on CBS News’ “Face the Nation.” “Now the question is where’s the right number in lifting it.”

The FDIC insured limit was last raised in 2008, from $100,000 to $250,000. “Perhaps that’s not enough,” Sen. Mike Rounds, R-S.D., a member of the Senate Banking Committee, said on NBC’s “Meet the Press,” citing the rise in inflation. “Should we bump it up?”

Exactly what that new limit could be remains to be seen. Warren suggested it could be much higher.

“This is a question we’ve got to work through,” Warren said. “Is it $2 million? Is it $5 million? Is it $10 million? Small businesses need to be able to count on getting their money to make payroll to pay the utility bills, nonprofits need to be able to do this.”

Rep. Patrick McHenry, R-N.C., chairman of the House Financial Services Committee, said he was open to determine whether or not the FDIC deposit level would need to be addressed. “We did it after the last financial crisis,” he told “Face the Nation.”

Democrats, including President Joe Biden, have blamed the banks’ failures on a 2018 law signed by then-President Donald Trump that scaled back some bank regulations.

“During the Obama-Biden administration we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank law to make sure that the crisis we saw happen in 2008 would not happen again,” Biden said during remarks at the White House last week. “Unfortunately the last administration rolled back some of these requirements.”

Biden said he would ask Congress and banking regulators to strengthen rules to make bank failure less likely.

Sen. Mike Crapo, R-Idaho, a member of the Senate Finance Committee, said Biden was “blame shifting” by pinning the failures on Trump, because Biden “knows his policies are what caused this.” Of the bank regulation rollback, he said, “this was not just a Trump or Republican effort, there were 16 Democrats in the Senate who voted for this.”

Crapo said blame for the bank failure belongs to “the bank leaders who did not adequately protect the liquidity of their assets and the supervisors who did not pick up on that quickly enough.”

He said during a Finance Committee hearing last week that he was concerned about the precedent of guaranteeing all deposits above the FDIC limit and there was more lawmakers needed to learn about Silicon Valley Bank’s failure.

“It is important to learn more about what initiated the run on Silicon Valley Bank, the impact of the Federal Reserve holding interest rates low for too long, and what steps were — or were not — taken by Silicon Valley Bank and the banking regulators,” Crapo said during the hearing.