Finance Facts Trump Biden’s Blame Game on Banking Woes

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Donald Trump dominated the news in more ways than one yesterday, as Biden officials attempted to place the Trump administration at the center of recent bank implosions more than two years after the former president left office.

“President Biden Urges Regulators to Reverse Trump Administration Weakening of
Common-Sense Safeguards and Supervision for Large Regional Banks,” reads a White House “fact sheet” released yesterday afternoon. In tandem with the White House’s rhetoric, Treasury Secretary Janet Yellen declared in a speech yesterday to the National Association of Business Economics: “Regulatory requirements have been loosened in recent years. I believe it is appropriate to assess the impact of these deregulatory decisions and take any necessary actions in response.”

Just about all politicians blame their predecessors for negative events that happen on their watch, but this version of the blame game by Yellen and other Biden officials rings especially hollow for several reasons. Among these are that Biden administration appointees have had control of the major banking agencies for more than a year, the actions of banking agencies in the Trump administration were pursuant to a bipartisan law that provided for very modest regulatory relief, and officials at these agencies have not disputed that this law allowed action against Silicon Valley Bank (SVB) for its mismanagement. 

First, Biden finance officials had ample time to – in Yellen’s phrasing — “assess the impact” of the Trump administration’s policies and “take necessary action,” as Biden appointees have had operational control over major banking agencies such as the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) since at least early last year. In fact, the Biden administration has been especially aggressive in making sure officials from the previous administration don’t serve even an hour longer than they have to. Empowered by the Supreme Court’s ruling in Seila Law that grants the president at-will removal of the director of the Consumer Financial Protection Bureau, Biden asked CFPB director Kathy Kraninger to resign within the first hour after he was inaugurated. Similarly, Federal Housing Finance Agency Director Mark Calabria recalls in his new book Shelter From the Storm (who is speaking at CEI in a forum on April 4) that on the day the Court made a similar ruling in Collins v. Yellen in June 2021, the Biden White House asked him to vacate his position by 6 PM that evening. 

And as I detailed in National Review, Biden appointees at the FDIC made unprecedented moves to wrest control of the FDIC from Trump-appointed Chair Jelena McWilliams, resulting in her resigning in late 2021, almost two years before her term ended. Given that Trump appointee Randal Quarles left his post as the Federal Reserve’s vice chair of supervision around the same time in late 2021, Biden administration appointees have arguably been in control of the major banking agencies since early 2022 and had plenty of time to start reversing rules and policies the Biden team now blames for bank implosions.

But another reason the attempt of Biden administration to put the blame on its predecessor falls short is that the policies in question – a modest tailoring of regulations for regional and community banks – were made pursuant to a 2018 law supported by many Democrats. The Biden administration’s “fact sheet” mentions the words “Trump administration” a whopping 11 times, but never utters a word about the Economic Growth, Regulatory Relief, and Consumer Protection Act, the law that enabled these policy changes that was backed by 17 Democrats in Senate and 33 Democrats in the House. The law was motivated by a widespread concern – visible in a comprehensive study from scholars at Harvard’s Kennedy School of Government – that the crushing mandates of the Dodd-Frank financial overhaul of 2010 was harming community and regional banks and leading to more concentration of the banking sector.

It’s also the case that the Trump administration has a mixed record – from CEI’s perspective – on clearing away financial red tape. My CEI colleague Wayne Crews notes in his Ten Thousands Commandments, his authoritative annual guide to the regulatory state, that “as in other sectors, the Trump administration exercised regulatory impulses of its own in the financial arena, particularly with respect to new online offerings that threaten incumbent firms and the existing financial regulatory landscape. Prominent were efforts to regulate cryptocurrencies and to establish government-run electronic payment systems.” But the Biden administration and other Democrats are finding that it suits their purposes to pump Trump up as the “great deregulator,” merely because the financial regulatory agencies during his administration implemented policies pursuant to a law that had significant bipartisan support. 

The main reason this narrative blows up, however, is that nothing in the 2018 law or the way the regulators implemented it during the Trump administration constrained regulatory agencies from taking action against SVB’s mismanagement practices during the Biden administration. This was made clear from the regulators themselves in their answers to some sharp question at the March 28 Senate Banking Committee hearing. 

Noting that the 2018 law gave the regulatory agencies the discretion to tailor to regulation to “riskiness, complexity, financial activities, along with other risk related factors” for banks of SVB’s size, Sen. Katie Britt (R-AL) asked the regulators at the hearing, “Why did you not require definitive corrective action based on the flaws that you saw?” Michael Barr, the Federal Reserve’ vice chair for supervision, replied: “The staff are reviewing the steps that supervisors took and whether they should have taken more aggressive action. … I really would like to wait for the formal review for the staff to come evaluate the full supervisory record to make an assessment.”

Britt responded that regulatory agencies must know where they failed to use the power they had before asking for an expansion of power. She said:

Well, I find it concerning though, when you all were asked, each one of you were asked, would you like to see more powers, more strength in this? Every single one of you said yes when you don’t actually know if you utilize the tools in your toolbox correctly, or if the people that were under your supervision were supervising appropriately. I think that’s what people hate about Washington.

Britt’s statement about regulatory accountability trumps narratives about blaming opponents and seeking more power in the quest for a more resilient banking system.