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OPINION

With latest bank failures, Senator Elizabeth Warren can say ‘I told you so’

She was right about the consequences of weakening financial rules and the misguided assist from Democrats.

In a March 14 letter to Silicon Valley Bank CEO Greg Becker, Senator Elizabeth Warren, scathingly blunt as usual, links the loosening of financial rules, which Becker championed, to the collapse of his bank.Anna Moneymaker/Getty

Republicans are blaming “wokeness” for the recent collapse of banks. Former Representative Barney Frank — the onetime champion of banking regulation who until recently served on the board of one of those failed banks — pins the blame on the panic around cryptocurrency.

But I’ll put my money on the analysis offered up by Senator Elizabeth Warren. She led the way in explaining the root causes of the 2008 banking crisis and what had to be done to fix it. In an opinion piece in The New York Times, she bluntly explained the cause of the most recent collapses, including at Silicon Valley Bank: “These recent bank failures are the direct result of leaders in Washington weakening the financial rules.” And, as Warren also notes in the piece, that weakening happened “with support from both parties.”

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Yes, Democrats helped then-President Donald Trump and his fellow Republicans weaken those financial rules. When it happened, Warren rightly called out both parties. “Republicans and Democrats came together today to deregulate the big banks and set the stage for another financial crisis,” she said then. Today, she can rightly say, “I told you so.” Or, as she put it more diplomatically in the Times: “I wish I’d been wrong.” But she wasn’t. She was right about the consequences of weakening financial rules and about the misguided assist from Democrats.

The law that accomplished the weakening of financial rules was signed by Trump in 2018. The measure passed in the Senate by a vote of 67 to 31, with support from 17 Democrats who helped Republicans get past the 60-vote margin they needed. It also passed in the Republican-controlled House with support from 33 Democrats. But the Senate vote was key to moving it along.

Why did those 17 Democrats vote with Republicans to ease the bank rules set in place under the Dodd-Frank Act after the 2008 financial crisis? A CNBC report at the time said most of those Democrats faced reelection and seven were running in states Trump won. But, as Warren also points out in the Times, “Wall Street chief executives and their armies of lawyers and lobbyists hated this law [Dodd-Frank]. They spent millions trying to defeat it, and, when they lost, spent millions more trying to weaken it.” It’s likely no coincidence that all that money and lobbying culminated in bipartisan support for changes sought by the banking industry.

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The law signed by Trump lifted the threshold for an institution to show it could handle a crisis from $50 billion to $250 billion. In a March 14 letter to Silicon Valley Bank CEO Greg Becker, Warren, scathingly blunt as usual, links the rule loosening he championed to the collapse of his bank. Becker, she wrote, “derided” the Dodd-Frank standards as “unnecessary compliance measures.’” Becker also argued that his bank was engaged in “low risk activities” and that it and similar banks knew how to guard against risk and would do so.

As it turns out, Silicon Valley Bank wasn’t engaged in “low risk activities.” As Warren explains it, the bank focused too much business in technology companies with big deposits, “driving an abnormally large ratio of uninsured deposits,” and put too much cash in long-term Treasury bonds, making it hard “to respond to a drawdown.” According to Warren, the failure to address those two risks led to the bank’s failure. And, she maintains that if the Dodd-Frank rules still applied, Becker’s bank would have been required to “maintain stronger liquidity and capital requirements and conduct regular stress tests.”

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In the aftermath of the recent bank collapses, Warren and Representative Katie Porter of California, who is running for the Senate, have introduced a bill that would put banks with $50 billion in assets back under stricter regulation and the Dodd-Frank “stress tests.” But the measure would need 60 votes in the Senate and a majority in the Republican-controlled House — and that’s hard to imagine.

Republicans are busy blaming the Silicon Valley Bank collapse on “woke” diversity requirements, which have nothing to do with how it carried out its banking business. Meanwhile, Democrats who supported the regulation weakening are mostly defending their votes.

As for Frank, he told the Globe that the failure of Signature Bank, whose board he served on until Sunday, was due to an overreaction by regulators and a bias against cryptocurrency. He also disputed reports that he supported the watering down of Dodd-Frank, pointing to a 2018 op-ed he wrote that was headlined, “Why I would vote ‘no’ on Senate bill to amend Dodd-Frank.”

If Frank is now distancing himself from the weakening of the law that carried his name, that’s just more evidence that Warren is right.


Joan Vennochi is a Globe columnist. She can be reached at joan.vennochi@globe.com. Follow her @joan_vennochi.