President Joe Biden believes that resilient community and regional banks provide vital services to small businesses, workers, and families around the country. The Biden-Harris Administration has taken decisive action to ensure the stability of the banking system without putting taxpayer dollars at risk. As we have demonstrated, the administration has the tools to act quickly to prevent contagion and is committed to taking strong action if needed. Americans should have confidence that their deposits will be there when they need them.

President Joe Biden
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As the President said when his administration announced actions to stabilize the banking system, he is committed to "continuing our efforts to strengthen oversight and regulation of larger banks so that we are not in this position again." The Obama-Biden Administration put in place strong requirements - primarily through the Dodd-Frank Act and subsequent regulations and supervision - to reduce the risk of future banking crises. Unfortunately, Trump Administration regulators weakened many important common-sense requirements and supervision for large regional banks like Silicon Valley Bank and Signature Bank, whose recent failure led to contagion.

The President believes that the weakening of common-sense bank safeguards and supervision during the Trump Administration for large regional banks should be reversed in order to strengthen the banking system and protect American jobs and small businesses.

Specifically, the President urges the federal banking agencies, in consultation with the Treasury Department, to consider a set of reforms that will reduce the risk of future banking crises, including:

  • Reinstating rules that were rolled back in the previous Administration for banks with assets between $100 and $250 billion, including:
    • Liquidity requirements and enhanced liquidity stress testing. Liquidity rules originally created under the Dodd-Frank Act required banks with between $100 and $250 billion in assets to hold sufficient high-quality liquid assets to cover expected net outflows during a stress period. The Trump Administration eliminated these rules for banks below $250 billion in assets. A recent analysis found that, as of the end of 2022, Silicon Valley Bank was well below the liquidity threshold that would have applied had the Trump Administration not exempted the bank from those rules. As we just saw, Silicon Valley Bank's liquidity stress contributed to its failure and quickly transmitted to other banks. Bank regulators are encouraged to consider reinstating these requirements and using rigorous liquidity stress tests that factor in the risks of faster withdrawals in an always-on online environment.
    • Annual supervisory capital stress tests. Federal banking authorities have undertaken comprehensive capital stress tests to evaluate a range of risks that could face banks and to require that banks clearly have enough capital to withstand the potential losses associated with those risks. Under the Trump Administration, regulators reduced the obligation for banks like Silicon Valley Bank to undergo these stress tests from once a year to once every two years. As a result, when Silicon Valley Bank failed, it had never undergone a comprehensive capital stress test even though it had more than $200 billion in assets. Concerns about the bank's capital levels contributed to a loss of confidence and withdrawal of deposits.
    • Comprehensive resolution plans (also known as "living wills"). Trump Administration regulators removed the requirement for bank holding companies in the $100 to $250 billion size range, like Silicon Valley Bank's parent company, to submit comprehensive resolution plans and asserted that the failure of these banks would not threaten the financial system. But the failures of Silicon Valley Bank and Signature Bank have now demonstrated clearly that failures of banks in this size range can pose systemic risk. As such, banks and bank holding companies of this size should have to submit plans describing how they could be wound down without transmitting stress to the rest of the banking system.
    • Strong capital requirements for banks, at an appropriate time after a considerable transition period. Americans should be confident that banks have sufficient capital cushions to absorb potential losses during stress events like the ones experienced by Silicon Valley Bank. At their point of failure, Signature Bank and Silicon Valley Bank had large unrealized losses on securities exceeding the capital available to absorb these losses. During the Trump Administration, regulators changed the rules to weaken a variety of capital requirements for some regional banks. These rules should be strengthened, to incorporate some of the requirements that already apply to the largest banks. In addition to revising these rules, there is remaining work to fully implement post-financial crisis capital rules.
  • Taking steps to once again ensure strong supervision.
    • Reduce the transition periods for applying common-sense safeguards to growing banks that are projected to exceed the $100 billion threshold. The Trump Administration not only extended stress-testing cycles but also allowed lengthy transition periods that delayed capital stress tests after banks first reached $100 billion in assets. These changes let Silicon Valley Bank avoid a supervisory capital stress test for three years after clearing that threshold. Regulators should, as appropriate, consider shortening the transition periods for common-sense safeguards like stress testing, and supervisors should consider making sure rapidly growing banks prepare for them even as they approach the asset threshold. In addition, regulators should consider other measures to address risks associated with banks' rapid growth.
    • Strengthen supervisory tools, including stress testing, to make sure banks can withstand high interest rates and other stresses. Rising interest rates are an obvious risk that any bank must manage. Regulators and supervisors are urged to consider using stress tests and other tools to ensure banks with $100 billion or more in assets have enough capital to withstand rising interest rates. They should also use their tools to assess liquidity for accelerated outflows of concentrated depositors and related liquidity shocks.
  • Expanding long-term debt requirements to a broader range of banks. Currently, regulators require the largest banks to issue minimum amounts of long-term debt, which, in the event of failure, can serve as a loss-absorbing buffer to better protect depositors. Last year, regulators began the process of updating these rules to, among other things, apply to a larger swath of banks. The regulators are encouraged to move forward expeditiously in proposing new rules.
  • Ensuring that the costs of replenishing the Deposit Insurance Fund after these recent bank failures are not borne by community banks. The FDIC relied on the Deposit Insurance Fund (DIF) - a fund made up entirely of fees paid by banks - to help ensure that all depositors at Silicon Valley Bank and Signature Bank had full access to their deposits. Current law requires the FDIC to levy a special assessment on banks to recover losses to the DIF and gives the FDIC discretion on how to implement the assessment.

Each of these items can be accomplished under existing law, and they build upon regulatory reforms already on this Administration's agenda, like completion of the executive compensation rule for bank executives authorized under Section 956 of the Dodd-Frank Act. It is important to put in place common-sense safeguards to reverse the Trump Administration's harmful weakening of bank safeguards and supervision and help ensure that community and regional banks remain resilient and continue supporting small businesses and jobs.