WASHINGTON — The recent bank failures that shocked the markets and caused a speedy government bailout were “basic prudential regulation failure” by management, U.S. Sen. Mark Warner of Virginia said Monday.
The Democratic senator, who sits on the Senate Committee on Banking, Housing and Urban Affairs, told reporters he stands by his position that 2018 banking regulation rollbacks that he supported were not solely to blame and that he finds it “unconvincing” that a stress test would have spotted a run on the California-based Silicon Valley Bank that happened in a matter of hours.
Congress repealed a portion of the Dodd-Frank Act in 2018 that as a result exempted midsize banks from certain stress tests. Several of Warner’s Senate Democratic colleagues have called for those protections to be restored.
“This was $42 billion in six hours, frankly started by some irresponsible (venture capitalists), crying the equivalent of fire in a crowded theater Wednesday night and Thursday morning. Not sure that’s illegal, but it sure is immoral,” Warner said.
“And you know when you suddenly have a run on the bank — that would by the time Thursday come around (amount to) basically 25 cents on a $1 for every dollar in the bank — I’m not sure how that is stopped.”
Federal regulators seized the Santa Clara-based bank on Friday, March 10, quickly followed by a state takeover of Signature Bank of New York, which was already under scrutiny for its role in cryptocurrency banking.
U.S. Treasury and Federal Reserve officials took the extraordinary step to guarantee depositors their funds, even above the federally insured limit of $250,000.
President Joe Biden, in remarks last week, called for bank managers to be “fired.”
Warner said he wants to see the president’s specific proposal but he supports “clawback” provisions by the Federal Deposit Insurance Corporation, which is tasked with buoying confidence in the U.S. financial system.
The senator has joined other Senate Democrats in supporting a measure that would recoup profits and bonuses from bank executives within a 60-day window of a bank’s failure.
Several large U.S. banks on Thursday joined together to give a $30 billion cash infusion to the First Republic Bank, a San Francisco-based midsize lender that saw its stock plummet following the collapse of SVB.
Warner expressed concern about a runoff of deposits going from midsize to larger U.S. banks, as in the case of First Republic.
“I was kind of nervous over the weekend, I had calls with a bunch of folks. You know, this week could still be choppy with some of these midsize banks,” he said.
Meanwhile, as midsize banks reportedly press the FDIC to insure all deposits above $250,000 for the next two years, Warner said he’s “open to that.”
“I don’t want to rush because to take that leap is a big leap,” he said.
Intelligence, TikTok and China
Warner, chair of the Senate Intelligence Committee, hammered on threats posed by the popular Chinese-owned video app TikTok, citing his concern over user data that could be harvested by the Chinese Communist Party and the risks of the CCP spreading propaganda via the app, including messaging about Taiwan.
The senator introduced the RESTRICT Act last week along with South Dakota Republican Sen. John Thune. The bill aims to empower the Commerce secretary to limit transactions involving communications and technology companies entirely or partially run by foreign adversaries, including China — and possibly setting the stage for a TikTok ban.
So far the bipartisan bill has attracted 18 co-sponsors, evenly split from each side of the aisle.
“I think our key here, though, is to put in place a rules-based approach, not just for TikTok, but for technologies that threaten national security that come from China, Russia, Iran, North Korea, and Cuba and Venezuela,” Warner said.
Warner also called on the intelligence community to “lean as forward as possible” in declassifying information about tech companies operated by foreign adversaries.
When pressed on potential as opposed to the proven spying capabilities or harm of TikTok, Warner defended his argument to crack down on the app.
“The potential of whether it’s 100 (million) or 150 million young Americans’ data being collected for years. Do we really want to wait to see the potential of that exploitation before we say ‘Oh my gosh, there could be harm?’” he said. “… I think that potential is of great enough harm and that we need to act.”
Warner spoke to reporters at the Monitor Breakfast series, an event hosted by the Christian Science Monitor that brings together lawmakers, newsmakers and journalists.