Last week, depositors rushed to pull money out of Silicon Valley Bank (S.V.B.), which held more than two hundred billion dollars in assets. On Friday, to stem the risk of contagion in the wider banking sector, regulators shut it down. Two days later, New York authorities closed Signature Bank, which held more than a hundred billion dollars in assets, with the similar goal of preventing a systemic meltdown. The federal government has pledged to backstop deposits at both banks. S.V.B. is the largest bank to fail since the 2008 financial crisis.

The crucial piece of legislation to come out of that earlier crisis was Dodd-Frank, which was named for its co-sponsors: former Senator Chris Dodd, of Connecticut, and former Representative Barney Frank, the progressive from Massachusetts. Frank left office in 2013; two years later, he joined Signature’s board. In 2018, the Trump Administration passed a new law that would scale back Dodd-Frank. Crucially, it increased the threshold at which banks would face higher levels of regulatory scrutiny from fifty billion in assets to two hundred and fifty billion. Frank claimed that, were he still in Congress, he would have opposed the bill, but he also defended it publicly multiple times, and even released a statement, with Dodd, that said, “This bill is not a big hand out to Wall Street.” By the time Signature collapsed, it was over the old threshold but under the new one; this has led some—including Senator Elizabeth Warren—to blame the 2018 law.

I recently spoke by phone with Frank about the old rules, the new rules, and why he decided to join Signature’s board. Our conversation, edited for length and clarity, is below.

Do you see any connection between the weakening of Dodd-Frank a few years ago and the collapse?

I came to the conclusion shortly after we passed the bill that fifty billion dollars was too low. I decided that by 2012, and, in fact, said it publicly. The reason I say that is that I didn’t go on the board of Signature until later. In fact, I had never heard of Signature Bank at the time when I began to advocate raising the limit. This is relevant, obviously, because Signature was a beneficiary of that.

I have to say, having been on the board, I became more convinced that I was right. I was on the Signature board both before and after, and the level of supervision did not diminish. The level of reporting diminished. It held off a paperwork chase.

Another thing to note is that, in this case, the key regulator who shut down Signature wasn’t affected by the 2018 law at all, because it’s the New York State Department of Financial Services. The state regulators were totally unaffected by this.

It’s not about who eventually shut down the bank. I’m curious about the weakened regulations because I want to know how the bank got to the place that it needed to be shut down.

I understand that, but the Department of Financial Services had that jurisdiction, and it was unlimited. In other words, I assume people accept that the Department of Financial Services, which took the lead in shutting it down, is a tough regulator. Their authority to regulate was undiminished by the 2018 law.

I have read what Elizabeth [Warren], and others, said. I don’t see any argument that there was something that was going on that would’ve been stopped if they had got the same scrutiny as JPMorgan Chase. No one has made a specific connection there.

Would there have been more scrutiny about whether the bank’s assets were liquid enough?

No. Under the law, the requirement for more capital was totally covered. The Volcker Rule—totally covered, unchanged. [This rule, which is part of Dodd-Frank, prohibits banks from engaging in certain kinds of trading.] There was nothing in the new law that relaxed any of the liquidity requirements for those banks.

What about financial reserves?

Again, unchanged, and nothing in that change diminished the ability of the regulators to impose reserve requirements, and to check reserve requirements. They absolutely had the obligation to check the reserve requirements. That did not go away in the 2018 bill.

I’m just reading from an article that appeared in 2018, in the Washington Post: The law called for a lowering of “the burdens these banks face on submitting plans for winding down if they fail (plans known as ‘living wills’); looser liquidity rules, which mandate that banks have easy access to assets that can quickly be converted to cash to pay their obligations if needed; and less frequent ‘stress tests,’ which gauge how prepared a bank is for a financial crisis.”

Two of those I agree with: less frequent stress tests and the living will. The living will is your plan for what you do when you have to be got rid of. Their power to require liquidity and check liquidity was very strong, and not diminished in any significant way by the bill.

This week, Elizabeth Warren wrote, in the Times, “Had Congress and the Federal Reserve not rolled back the stricter oversight, S.V.B. and Signature would have been subject to stronger liquidity and capital requirements to withstand financial shocks.”

I disagree with that. Where there was a weakening—the living will and the stress test—neither one of those goes to the actual physical condition of the bank. They are procedural requirements that were not imposed on banks under two hundred and fifty billion dollars, whereas they had been before. Neither one of those in itself is a cause of weakness. The power to look at liquidity, to increase liquidity and to say, You have too little—they had every power they needed to do that. [The bill allowed regulators to keep liquidity and capital requirements on banks with total assets between a hundred billion and two hundred and fifty billion, but no longer mandated they do so.] I will tell you, as a member of the board of Signature, we underwent some discussions about liquidity, and the need to increase liquidity or maintain it.

You did?

Yeah. By the way, one of the things they said during the weekend with us and with S.V.B. was, We don’t think you have enough liquidity. If they had lost the power to do that in 2018, how could they do that during the weekend?

Wait, aren’t you talking about two separate things: insuring that the bank doesn’t get to a point where it’s in trouble, versus shutting it down when it’s already in trouble?

Please let me finish.


That’s exactly the point I tried to make to you. Nothing affected or diminished the ability of the regulators to say, Stop doing this. Get more liquid.

The issue is requirements though, right? I don’t want to defend the regulators here. The issue is whether banks should be—

No question. If the regulators were going to be lax . . . although, by the way, it’s always hard. You can’t force people to do things. The metaphor is you can’t push on a string.

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