Silicon Valley Bank’s collapse shines light on lobbyists who helped deregulate banks

It seemed like a good idea at the time: Red-state Democrats facing grim reelection prospects would join forces with Republicans to slash bank regulations — demonstrating a willingness to work with President Donald Trump while bucking many in their party.

That unlikely coalition voted in 2018 to roll back portions of a far-reaching 2010 law intended to prevent a future financial crisis. But those changes are now being blamed for contributing to the recent collapse of Silicon Valley Bank and Signature Bank that prompted a federal rescue and has stoked anxiety about a broader banking contagion.

The rollback was leveraged with a lobbying campaign that cost tens of millions of dollars, drew an army of hundreds of lobbyists and was seeded with ample campaign contributions.

The episode offers a fresh reminder of the power that bankers wield in Washington, where the industry spends prodigiously to fight regulation and often hires former Congress members and their staff to make the case that they are not a source of risk to the economy.

“We can draw a direct line between the deregulation of the Trump period, driven by the bank lobby, and the chaos of the last few weeks,” said Carter Dougherty, a spokesman for Americans for Financial Reform, a left-leaning financial watchdog.

“The bottom line is that these banks would have faced a tougher supervisory framework under the original … law, but Congress and the Trump regulators took an ax to it,” he said. 

According to OpenSecrets, a nonpartisan group tracking money in politics, all seven registered lobbyists for Silicon Valley Bank in 2022 previously held government jobs overseeing financial institutions.

Tougher penalties?

President Joe Biden has asked Congress for the authority to impose tougher penalties on failed banks. The Justice Department and the Securities and Exchange Commission have started investigations. And congressional Democrats are calling for new restrictions on financial institutions.

But so far there is no indication that another bipartisan coalition will form in Congress to put tougher regulations back in place, underscoring the finance industry’s continued clout. Indeed, when the Federal Deposit Insurance Corporation last year moved to increase what banks pay to insure their customers against failures, lobbying groups blocked the measure, The Lever reported.