Biden administration proposes stricter banking regulation following SVB, Signature Bank failures

Yahoo Finance political columnist Rick Newman joins the Live show to talk about potential changes in policy following recent bank collapses.

Video transcript

SEANA SMITH: But first, let's get you up to speed on the latest developments out of Washington. Now, the White House has announced its plan to strengthen bank regulations following the collapse of Silicon Valley and Signature Banks over the last several weeks. Yahoo Finance Senior Columnist Rick Newman has the details for us. Rick, what can you tell us about this plan?

RICK NEWMAN: Hey, guys. Basically, what the Biden administration wants to do is reinstate many of the regulations that were in place before Congress and the Trump administration weakened them in 2018 and 2019. And the short version of what they want to do here is basically lower the threshold for the tightest set of regulations.

What happened back in 2018 and 2019 was some of those rules, instead of affecting banks at the $100 billion level of deposits, it went all the way up-- those didn't kick in until $250 billion of deposits. So there was this gap between $100 billion and $250 billion where the smaller banks had lighter regulation. And basically, the Biden administration is saying, let's just lower that threshold.

So basically, all the banks from $100 billion on up would be subject to the strictest regulations. And that would have included both of those failed banks, Signature and Silicon Valley. And they also say they can do this just through regulation. Congress will not have to pass a new law. And my understanding is, actually, they can do that.

So the Biden administration is basically telling the Fed, the FDIC, and some other agencies, this is what we want you to do. We'll see if those agencies actually do it.

DAVE BRIGGS: Rick, what would this have changed? If these were in place, could this still have been missed by the Fed, by regulators together?

RICK NEWMAN: It could have been missed. But here are a couple of examples. The smaller banks, the lower threshold, they are only required now to undergo a stress test to see how they would handle an adverse situation once every two years. And under the new rules, which would be the same as the old rules, that would have to happen every year.

And they would also compress the amount of time that you are obligated to undergo one of these stresses once you actually cross that threshold. So Silicon Valley grew so fast that it kind of just got stuck in a bit of a time warp where it was getting pretty big. In fact, it was almost as big as the big banks at $250 billion, but it had not come under any of those new regulations. So those are some examples-- basically, treat smaller banks the same way we treat the big, so-called too big to fail, banks.