Economic Liberties Details Policy Responses to Bank Bailouts
Washington, D.C. — Following the collapse and subsequent bailout of Silicon Valley Bank, the American Economic Liberties Project released “The Silicon Valley Bank Bailout: What You Need to Know,” a new policy quick take that recaps what really happened to SVB and later, Signature Bank, examines why taxpayer money was used to shore up creditors, and offers a several policy solutions to restructure the banking industry in both the short- and long-term.
“The SVB and Signature Bank bailouts exposed the myth that banking is a private business,” says Matt Stoller, Director of Research at the American Economic Liberties Project. “Bankers are now shielded from risk, making bets with taxpayer money and keeping the profits in the form of bonuses when they win, and leaving taxpayers with the losses when they lose. We need a national conversation on new rules for this public banking system now.”
As explained in the new policy quick take, the short-term policy response to the failure of SVB should include:
- An investigation of Silicon Valley Bank, Signature Bank, and the associated activities of stakeholders, such as the powerful venture capitalists who banked at these institutions and then demanded a bailout.
- A Congressional repeal of the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act.
- Clawbacks of executive compensation at SVB and Signature Banks.
- Investigations over insider trading possibilities by the Securities and Exchange Commission and the Department of Justice Criminal Division, given insider stock sales just weeks before the run on SVB.
- Loosening of capital requirements in the short-term to prevent a downward spiral among otherwise healthy banks.
- Assuming financial conditions continue to tighten, other parts of the government should inject capital into the banking system to resolve weak banks, and to hold assets until the immediate panic has abated. Such a package should have clawbacks and penalties for those who profited from excessive risk-taking.
- Continuing to encourage banks to borrow from the Federal Reserve to deal with sudden demands for cash, but only against good collateral.
Given the now public nature of our banking system, long-term policy solutions to restructure the sector should include:
- Move bank supervisory authority from the Federal Reserve to the FDIC.
- Create a permanent version of the FDIC’s crisis-era “Temporary Liquidity Guarantee Program” to remove risk of loss from deposit accounts “commonly used to meet payroll and other business transaction purposes.”
- For bank with more than $100 billion in assets, increase liquidity requirements, ban stock buybacks, and impose executive compensation caps.
- Propose and finalize executive compensation rules for financial executives in Section 956 of Dodd-Frank.
- Have the Financial Stability Oversight Council begin proceedings to break up “Too Big to Fail” banks that have a competitive advantage due to their perceived government backstop.
- Close the loophole in the Volcker Rule allowing banks to engage in equity investments.
- Development a public banking system for deposits that are purely for safekeeping of cash and payroll disbursements.
- Accelerate the development of the FedNow payments network.
- Appoint tough regulators like Saule Omarova to bank regulatory positions.
- Create a presumptive ban against bank mergers above $50 billion in assets in order to prevent banks from becoming large enough to represent systemic risks. Include an emergency exception in case a quick sale is necessary during a bank run.
Read the full policy quick take, “The Silicon Valley Bank Bailout: What You Need to Know.“
Learn more about Economic Liberties here.