The Disastrous Deregulation Merry-Go-Round

The recent bank crisis that saw the collapse of the Silicon Valley and Signature Banks is now being blamed on the deregulation bill passed by Congress and signed into law by President Trump in 2018. Just to keep the record straight, the measure was supported by numerous Democrats as well as Republicans, including Montana’s Senators Democrat Tester and Republican Daines.

Both claim they voted for the bill that rolled back the Dodd-Frank banking regulation law to protect Montana’s small banks. But in fact the “small bank cut-off” for stricter federal oversight is a whopping $250 billion in assets.

Silicon Valley Bank had over $200 billion in assets, but when the word got out that the bank was in trouble, large depositors, like billionaire Peter Thiel who started PayPal, pulled their significant holdings out of the bank and kicked off the “run” that collapsed the bank in a mere 24 hours.

One might well wonder why Tester and Daines thought removing federal oversight would help Montanans. After all, anyone with money in the bank naturally wants confidence that their deposits are fully protected against a crash.

Both Daines and Tester have taken significant campaign donations from the banking industry. And Tester sits on the Senate Banking Committee, where he is continually wooed by banking lobbyists. Not that any of that is unusual, as evidenced by Senate Majority Leader Chuck Schumer, (D-NY) and Maxine Watters (D-CA), who rushed to return donations received from Silicon Valley Bank’s operatives, saying they would be “donated to charity.”

Cutting to the chase was Massachusetts Democrat Senator Elizabeth Warren, who established the Consumer Financial Protection Bureau and chaired the Congressional Oversight Panel of the Troubled Asset Relief Program. Highly respected for her deep knowledge of the banking industry, Warren laid it out bluntly. “Connect the dots. The 2018 rollback permitted the banks to take on more risks in order to boost their profits. So what did they do? They took on more risks, boosted their profits, gave their executives big bonuses, and then blew the banks up.

Tough to see how rolling back regulatory oversight benefited Montana’s “small banks” — or the Montanans who place their money and trust in those institutions. Likewise, it’s very difficult to see how Tester’s and Daines’ votes did anything to stabilize the nation’s financial situation. As reported, it appears to have achieved exactly the opposite with “the heaviest [stock] losses were focused on smaller and mid-size banks, which are seen as more at risk of having customers try to pull their money out en masse.”

Now legislation has been introduced to restore the former Dodd-Frank regulatory oversight and “resurrect the threshold set for stress tests and capital rules that had been eased for small and mid-sized banks in light of the recent collapse of Silicon Valley Bank and other institutions.”

If it sounds like Congress is on a deregulation merry-go-round, it’s because that’s exactly what’s happening…especially when greed overcomes good management and the bankers’ can’t resist grabbing the gold ring.

Of course this is no news to Montanans, who have lived through their own deregulation merry-go-round. First our legislature deregulated utilities in the 90s, resulting in Montanans going from the lowest electric costs in the region to the highest. So then they re-regulated the utilities and now we have NorthWestern Energy’s monopoly and ever-rising rates.

Some day we may learn, but our current legislature is again on a deregulation run, this time on local zoning and environmental regulations. And so the merry-go-round continues until of course, it crashes…which is almost the inescapable result of letting greed run wild while prudence gets the boot.

George Ochenski is a columnist for the Missoulian, where this essay originally appeared.