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U.S. banking: Politicians blame former President Trump for rolling back regulations

Yahoo Finance’s Rick Newman joins the Live show to discuss the failure of Silicon Valley Bank and why some regulators are blaming former President Trump for bank deregulation.

Video Transcript

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RACHELLE AKUFFO: As regulators continue to gather the facts behind the failure of Silicon Valley Bank, some politicians are blaming former President Donald Trump for rolling back regulations during his administration. Let's break down what we know so far with Yahoo Finance's Rick Newman. Good to see you, Rick.

RICK NEWMAN: Hey. This is now getting a lot a lot of scrutiny, this kind of slip below the radar back in 2018 and 2019. But a couple of things-- important things happened back then. Trump was a huge fan of deregulation. I mean, he ran on that. He said he was gonna roll back some of the Dodd-Frank reforms. And he actually pushed for that.

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Congress did change some of those rules. They loosened them on medium-sized banks, which happened to include the two that recently failed. And then another important thing that happened was the Federal Reserve and other banking regulators actually eased the way they supervise smaller banks. And all of this is now coming back into the system.

We just had this testimony yesterday from some bank regulators. Congress trying to figure out what went on. So it's never one thing when you have a blow up like this. I mean, it's usually a bunch of different factors coming together in ways nobody foresaw. And I think that's the story with Silicon Valley Bank and the other one, Signature.

But this is all going to be thoroughly reviewed now. And it seems quite possible that we're going to undo some of that banking regulation from 2018 and 2019, and redo it again. By the way, Trump is a candidate for president in 2024. If this were a normal election, he should explain what he thinks about the impact, you know, the consequences of the policies that he pushed when he was actually president.

Nobody's asking him about that. He goes to his rallies and he talks about witch hunts, and rigged elections, and stuff like that. If we get to substance, this would be a good thing to ask President Trump.

RACHELLE AKUFFO: Because one thing that some of the lawmakers were questioning on, it's was there good enough use of the regulations already on the books versus the need to expand? How do you see them really sort of walking that line?

RICK NEWMAN: So first important thing is the bankers screwed up. I mean, they completely mismanaged the interest rate risk. And nothing about regulation should, you know, get them off the hook. But the Fed itself has now said, they noted-- they were the main regulator, the Federal Reserve. And they noticed problems at Silicon Valley Bank going all the way back to the end of 2001 related to interest rate risk and did they have enough liquidity in a stress scenario.

All kinds of things apparently went wrong, such as the stress test they put the bank under was to test what would happen if interest rates went really low, but not if interest rates went really high. So it was the wrong stress test. Why was it the wrong stress test? Many times in 2022, Fed regulators identified problems at Silicon Valley Bank, but they never actually did anything about it.

One of the changes that happened in 2019 was when bank regulators detect problems, they no longer had to report those problems to the board of directors of the bank. They only had to report those problems to members of the executive team. So that [? would ?] you know, if the-- if the CEO and the bank managers wanted to keep that from the board, they could potentially do that. That may have been an issue here.

So whatever-- so the banking regulators saw the problems and they just were unable to stop the failure of the bank. So what the heck happened? I mean, we don't really know but that's what we need to find out.

RACHELLE AKUFFO: Certainly, and I believe we'll be getting more details when both the FDIC and the Fed released their full reports on May 1.

RICK NEWMAN: Yeah, and I'm not sure those are gonna be definitive because the Fed is basically gonna be investigating itself. The FDIC will be investigating itself. And I think this does call for some kind of third party outside answer.

RACHELLE AKUFFO: Indeed. Lawmakers certainly not happy with what they've heard so far.

RICK NEWMAN: Not so far.

RACHELLE AKUFFO: Rick Newman, always great to have you on.

RICK NEWMAN: Thanks, Rachelle.