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D.C. Memo: Bank collapses stoke even more partisanship

Plus: Craig targeted by GOP, again.

Silicon Valley Bank (SVB) logo
REUTERS/Dado Ruvic/Illustration

WASHINGTON — The astounding failure of Silicon Valley Bank (SVB) has prompted the usual kind of finger pointing and partisan bickering here that every major crisis provokes.

SVB collapsed after customers withdrew a staggering $42 billion last week, sending shock waves through the nation’s banking sector. The failure of New York-based Signature Bank over the weekend intensified the panic.

President Biden and Treasury Secretary Janet Yellen assured Americans this week that the nation’s banking system is sound. But members of Congress are divided over the health of the nation’s banking system, and over what they should do they should to prevent the implosion of more banks like SVB and Signature.

SVB, headquartered in Santa Clara, Calif., catered to high tech companies and startups.  Signature was heavily invested in cryptocurrency and digital assets.

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SVB was also invested in cryptocurrency, and so was a third bank, California-based Silvergate Bank, which voluntarily closed this week.

It will take some time for federal investigators, including the Justice Department, which is probing SVB’s collapse, to determine what went wrong with these banks. But that did not stop lawmakers from coming to their own conclusions.

After the 2008 recession, Congress stiffened rules around asset-to-equity ratios and imposed harsh restrictions on the types of investments financial institutions could make with depositor dollars. Yet a Republican-controlled Congress in 2018 relaxed many of those laws, with some Democrats, including former Minnesota Rep. Colin Peterson, joining the effort. The move was supported by the nation’s banks – and Federal Reserve Chair Jerome Powell, whose interest-rate raising aimed at fighting inflation has been identified as one of the reasons SVB collapsed. The nation’s tech companies are hard-hit by the anti-inflationary rate hikes.

In an address to the nation this week, Biden asked Congress to repeal that 2018 banking law.

“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 that a crisis we saw in 2008 would not happen again,” Biden said. “Unfortunately, the last administration rolled back some of these requirements. I’m going to ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of bank failure would happen again.”

The 2018 law raised the threshold at which a bank would be considered “too big to fail” to $250 billion from $50 billion. Banks deemed “too big to fail” were required to keep more capital on hand and undergo periodic stress tests.

Although Biden used his bully pulpit to pressure Congress, action is unlikely because of deep partisan divides.

Rep. Tom Emmer, R-6th District, a member of the House Financial Services Committee, was a champion of that 2018 legislation, appearing at the White House ceremony that was held when former President Donald Trump signed the bill into law.

This week, Emmer blamed the bank collapses on Biden administration policies, which he says have resulted in inflation.

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“It’s the Biden administration that has broken this,” Emmer said on Fox News. “It’s just like your eggs. It’s like your gasoline. It’s like your heating oil.”

Emmer also sent a letter this week to Federal Deposit Insurance Corporation Chairman Martin Gruenberg that said Biden administration cryptocurrency policies are also to blame. The letter said “federal regulators have effectively weaponized their authorities over the last several months to purge legal digital asset entities and opportunities from the United States.”

Emmer said the effort to “weaponize recent instability in the banking sector,” coupled with “catastrophic spending” and the sharp raising of interest rates are “deeply inappropriate and could lead to broader financial instability.”

Federal officials have warned U.S. banks against risky cryptocurrency investments and have barred any potential buyer of Signature Bank from holding any cryptocurrency businesses.

Other GOP conservatives insist the failure of Silicon Valley Bank is the result of the bank’s “woke” policies. They blame the bank’s commitments to workplace diversity and environmentally and socially conscious investments— which they say was implemented at the expense of fiscally sound management – on its collapse. Democrats are ridiculing those attacks.

“Count me in for all the ‘woke means everything I don’t like or understand’ content. Tremendous,” tweeted Sen. Chris Murphy, D-Conn., “FYI it was a Republican super donor who backed the bank and then led the run that created the crisis.”

The Biden administration’s decision to pay back all depositors of SVB and Signature, above the $250,000 limit provided by traditional FDIC insurance has also been seized on by Republican critics as an unjust “bailout.” Some progressive Democrats also don’t like this idea, calling it “corporate welfare” that helps the wealthy while programs that serve the poor are underfunded.

Craig targeted by GOP, again

Some members of the House of Representatives are locked into constant campaigning and Rep. Angie Craig, D-2nd District, is among those in this unenviable group.

This week, the National Republican Congressional Committee released its list of 37 Democratic targets. As she has been before, Craig was on it.

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Democrats on the GOP hit list, many of them in swing districts like Craig, will be the targets of millions of dollars in NRCC-funded attack ads and their challengers will receive other campaign-related help from the national Republican Party.

“These House Democrats should be shaking in their boots,” said NRCC chairman Rep. Richard Hudson, R-N.C., of the Democrats on the NRCC list.  

Craig, who has won close races since she was first elected in 2018, appears nonchalant.

“You would think the NRCC would have learned their lesson by now. Bring it on,” she said.

Craig has already drawn one Republican challenger,  Michael Murphy, the former mayor of Lexington and a former GOP gubernatorial candidate, has filed a statement of candidacy and others may through their hats in the ring.

Craig, whose path to victory has always been made more difficult by the presence of marijuana candidates on the ballot, this week wrote the Minnesota state Senate Election’s Committee in favor of ranked choice voting.

“Having multiple choices on the ballot will allow citizens in my district to give their first,

second or even third choice for their Representative in Congress,” Craig wrote. “Ranked Choice Voting is good for democracy and good for voters.”

Ranked choice voting allows voters to rank candidates in order of preference. If no candidate wins a majority of first-preference votes, the candidate with the fewest first-preference votes is eliminated. First-preference votes cast for the failed candidate are eliminated, lifting the next-preference choices indicated on those ballots. The process, which is already employed in some Minnesota elections, is repeated until a candidate has a clear majority.