Maine Sens. Angus King and Susan Collins both supported former President Donald Trump’s rollback of Obama-era banking rules that some Democrats say led to recent bank failures that new reporting shows could spread.
Collins, a Republican, and King, an independent who caucuses with Democrats, have yet to indicate whether they will support a bill drafted last week by Sen. Elizabeth Warren (D-Mass.) and Rep. Katie Porter (D-Calif.) that would reverse aspects of the rollback that they originally supported.
Last week, King said he stands by his 2018 vote for Senate Bill 2155, which curbed parts of the Dodd-Frank Act passed in 2010 in the wake of the Great Recession. The regulations forced banks to lend responsibly, hold adequate cash on hand, and conduct stress tests to ensure the liquidity required to prevent a run such as the one that led to Silicon Valley Bank’s collapse earlier this month.
That rollback, which was heavily lobbied for by Silicon Valley Bank, lifted the threshold for oversight from banks holding over $50 billion in assets to banks holding over $250 billion.
King and 16 Senate Democrats helped Republicans overcome a filibuster to pass the law.
“Would I vote the same way? Yes, because of the important help to smaller banks and community banks,” King told The Intercept on March 15. “That was my mission, that was what I was working on. The others were focused on the $250 [billion], and that was part of the compromise that got us the aid for the smaller banks.”
Since Silicon Valley Bank and Signature Bank failed, Democrats who supported the 2018 rollback haven’t backed away either. Virginia Sens. Tim Kaine and Mark Warner have instead blamed the bank failures on mismanagement and argued that stress tests would not have necessarily revealed the dangers.
However, other lawmakers say the 2018 rollback has directly contributed to the latest banking collapse, which they predicted at the time.
“In 2018, I rang the alarm bell about what would happen if Congress rolled back critical Dodd-Frank protections: banks would load up on risk to boost their profits and collapse, threatening our entire economy — and that is precisely what happened,” said Warren, who has introduced legislation to reverse the exemption of banks the size of Silicon Valley Bank and Signature Bank from Dodd-Frank.
She was echoed by independent Sen. Bernie Sanders of Vermont: “Let’s be clear. The failure of Silicon Valley Bank is a direct result of an absurd 2018 bank deregulation bill signed by Donald Trump that I strongly opposed,” he said.
King has not been specific about what he sees as the cause. “The question is what happened. And it’s a fair question. Let’s pursue it,” he told The Intercept. And he has been vague on what new regulations, if any, are needed for the banking industry. “In the days and weeks ahead, I’ll be considering new guardrails and policies with my colleagues to reduce the chances we’ll see such similar economic threats in the future,” he told the Bangor Daily News.
King’s office did not respond to a question from Beacon about whether the senator supports or plans to sponsor any new legislation.
The implosion of Silicon Valley Bank was the second-largest bank collapse in U.S. history and the first since the 2008 financial crisis. It was caused by a liquidity problem spurred by the Federal Reserve’s aggressive interest rate hikes intended to drive down wages by causing a recession. As another consequence of those hikes, the bank’s primary clients, unprofitable tech startups dependent on low-interest loans to stay afloat, began pulling their money at the same time that the government bonds the bank was heavily invested in became worth less. This eroded the bank’s assets and caused it to go under when depositors panicked.
A new study by economists published on the Social Science Research Network has found that more U.S. banks could face Silicon Valley Bank’s fate. Close to 190 banks are at risk of failure even if only half of their depositors decide to withdraw their funds.
The Lever reported that Silicon Valley Bank spent more than half a million dollars on federal lobbying to get exempted from scrutiny under Dodd-Frank. A political action committee connected to the bank has also given large donations to both Republicans and Democrats, although no contributions were made to either King or Collins.
Maine’s senators have both taken significant donations from the financial industry over their careers. Collins has received $3.3 million from donors linked to securities and investments during her career, according to OpenSecrets, and King has taken nearly half a million dollars from the same industry since being elected in 2012.
According to ProPublica, Collins was the top Senate recipient of private equity donations during the 2020 election cycle.