Biden, lawmakers scrutinize bank regulations in wake of Silicon Valley Bank failure

Lawmakers in Washington are returning to Congress this week facing the fallout from the Silicon Valley Bank (SVB) failure.

President Biden, speaking at the White House on Monday, called on Congress to pass legislation that would strengthen the Dodd-Frank Act.

Meanwhile, Republicans, who convened on a conference call Monday evening, have started blaming high inflation as the catalyst for the collapse.

Here's how the president and lawmakers are responding to the banking crisis:

Dodd-Frank debate

Biden vowed to introduce legislation that would strengthen the Dodd-Frank Act, which was passed in 2010 in response to the Great Financial Crisis of 2008-2009. He also criticized Republicans for rolling back some of the financial regulations.

"During the Obama-Biden administration, we put in place tough requirements on banks like Silicon Valley Bank and Signature Bank, including the Dodd-Frank Law, to make sure the crisis we saw in 2008 would not happen again," Biden stated. "Unfortunately, the last administration rolled back some of these requirements."

In 2018, then-President Trump signed into law legislation that allowed medium-sized banks — such as Silicon Valley Bank — to not have to adhere to the same restrictions as big banks.

Biden is joining progressives like Sen. Elizabeth Warren (D-MA) in arguing that Trump's changes to Dodd-Frank are to blame for the collapse. It's worth noting that several Democrats also voted to pass that legislation, including Sens. Joe Manchin (D-WV) and Jon Tester (D-MT).

Now, in the wake of the collapse of several regional banks, Biden indicated in his remarks at the White House that he is willing to have a fight over Dodd-Frank.

"I'm going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely that this kind of bank failure will happen again and to protect American jobs and small businesses," Biden added.

But it's unlikely that any legislation strengthening Dodd-Frank will pass in a divided Congress.

Lawmakers point to Fed rate hikes, inflation

Federal Reserve Chair Jay Powell said Monday that the central bank is launching a full review of what went wrong at Silicon Valley Bank. But some lawmakers on both sides of the aisle are ready to point the finger at the Fed.

Previously, Warren and other progressives have blasted Powell for raising rates, arguing that the central bank will tip the economy into a recession. Powell has said the rate hikes are necessary to combat still-high inflation.

Republicans on the Hill responded this week by blaming high inflation as part of the cause of the SVB collapse.

"The real driver of this whole problem is the fact that we're living under 40-year-high inflation," Rep. Bryan Steil (R-WI) said. "There's going to be a full after-action report as we're done with this."

"I don't think that I'm terribly surprised Elizabeth Warren is looking to find the blame other than reckless spending in Washington," Steil continued. "The gorilla in the room is that we have rampant inflation. It was the inflation that really drove this when you look at what was on the books, where the deposits were for these institutions."

Kevin Cirilli is Yahoo Finance contributor and a visiting media fellow at the Atlantic Council's Global China Hub.

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