On March 30, 2023, the White House endorsed several proposals to strengthen regulatory requirements for the banking industry in the wake of the Silicon Valley Bank and Signature Bank failures. This comes on the heels of President Biden’s March 13, 2023 remarks where he noted his intention to ask Congress and the banking regulators to “strengthen the rules for banks” to decrease the likelihood of similar failures in the future. Among the proposed changes being endorsed are reinstating rules for banks with assets between $100 billion and $250 billion, which the White House noted were rolled back during the previous administration, such as liquidity requirements, enhanced stress testing, and “living wills” detailing how banks of this size can be wound down. The Biden Administration further called on regulators to require some of the proposed reforms be imposed on mid-sized banks, such as annual stress testing and living wills, and to ensure that the costs of replenishing the Deposit Insurance Fund not be borne by community banks.
While it is clear the regulators have the backing of the White House to move forward with enhanced regulations, the banking industry’s reactions to the White House’s endorsements and the proposed reforms have been mixed. Greg Baer, president and chief executive of The Bank Policy Institute, a trade group for the largest banks, urged caution on adopting new regulations, noting that the proposals feel like a “ready, fire, aim” approach given the Federal Reserve has “barely begun its promised review” and the proposed additional regulations could “impose meaningful costs on the U.S. economy going forward.” On March 30, 2023, the Consumer Bankers Association (CBA) president and CEO, Lindsey Johnson, released a statement that echoed similar sentiments, noting now was not the time for “knee-jerk political reactions” and underscoring the strength and resilience of America’s banks, which were some of the most well-regulated in the world. Rob Nichols, president and CEO of the American Bankers Association, agreed with the Biden Administration and Congress on the need to understand why the recent bank failures occurred; however, he noted the call for rule changes was “premature” given the ongoing reviews by the Federal Reserve, FDIC, and GAO.
Better Markets, however, applauded the White House’s call for bank reforms and regulators’ actions. The nonpartisan organization, which was founded during the 2008 financial crises, noted that while “bankers, their lobbyists, and allies are going to scream and make all sorts of baseless claims . . . if they are properly regulated,” Dennis M. Kelleher, the organization’s co-founder, president, and CEO, underscored the “important words and directives from the White House” and looked forward to “prompt action.” Finally, in response to the White House’s directive calling on the FDIC to ensure community banks do not bear the costs of replenishing the Deposit Insurance Fund, Independent Community Bankers of America president and CEO, Rebeca Romero Rainey, issued a statement in support of the White House’s announcement.
With the support of the White House behind the federal banking agencies’ regulatory reforms, enhanced banking regulation appears imminent. What is less clear is whether the banking industry will also back the reforms, with some groups urging caution and others welcoming prompt action. What has been suggested, however, is that according to Federal Reserve data, less than two dozen firms out of approximately 4,000 FDIC-insured U.S. banks would likely be affected by partially reinstating the rules that were rolled back under the previous administration.