News: SVB crisis sparks small bank vs. big bank lobbying battle

Tuesday, March 14, 2023

SVB crisis sparks small bank vs. big bank lobbying battle

Mar 14, 2023

Presented by Apollo Global Management

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Brace yourself for bank-on-bank warfare in Washington.

The banking industry’s factions of lobbyists are beginning to draw battle lines following the collapse of regional lenders Silicon Valley Bank and Signature Bank, as a regulatory crackdown looms.

The opening salvo is coming from the Independent Community Bankers of America, a trade association representing the nation’s smallest banks. The group is one of Washington’s lobbying powerhouses, with members beloved and protected by lawmakers on the left and the right.

The ICBA entered the fray early Monday with this message to reporters covering the crisis: “Silicon Valley Bank and the Nation’s Largest Banks Are Not Community Banks.”

ICBA is now gearing up to make the case that its members shouldn’t have to pay for the rescue of bank depositors and that the largest lenders deserve stricter oversight from regulators.

ICBA President and CEO Rebeca Romero Rainey told MM that community banks shouldn’t have to pay any special assessments “to cover the sins of the largest and riskiest institutions.” It’s a live issue now that the government has promised to backstop all deposits at the two failed lenders, with individual banks potentially on the hook for fees to cover the cost of replenishing the deposit insurance fund.

Looking ahead, Romero Rainey said Congress and the regulators need to consider strengthening rules for the largest banks. Everyone is still assessing the situation, but bank capital is part of the discussion, she said.

“As we saw the systemic impact that failure would have, we have to learn from that and avoid it in the future,” she said.

It’s a message that’s already starting to annoy bigger players in the industry.

“When you see deposits flooding out of small banks to large ones, it gets really tough to claim that large banks need more capital or liquidity,” said one large bank representative, granted anonymity to respond candidly. “But salmon swim upstream, so perhaps the ICBA thinks it can too.”

Financial Services Forum spokesperson Barbara Hagenbaugh said the U.S. “broadly benefits from a strong and resilient system of banks of all sizes to meet the many and diverse needs of our economy.” The group represents eight of the largest U.S. banks.

“As we saw during the pandemic and we are seeing now, the eight Forum members are strong and diversified, acting as a source of support for the economy,” she said

Romero Rainey said part of her challenge is ensuring “differentiation” as larger banks use the uncertainty to win over customers from smaller lenders.

“I hate to see folks taking advantage of this situation to portray a different scenario or a lack of strength,” she said.

It’s Tuesday — Help us stay on top of this mess. Send tips to zwarmbrodt@politico.com and ssutton@politico.com.

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Driving the Day

The Senate returns while the House is out … The U.S. Bureau of Labor Statistics will release February CPI data at 8:30 a.m. … Treasury Assistant Secretary for Economic Policy Ben Harris discusses the Russia oil price cap at AEI at 10 a.m. …

The latest — The FDIC is aiming to complete another auction for SVB this week, a lawmaker who attended a Monday night briefing with regulators told Sam. Officials are trying to find a buyer to take over the bank’s operations.

Two bids were submitted in an auction Sunday but they didn’t guarantee deposits and weren’t accepted, the lawmaker said. An FDIC spokesperson declined to comment.

Markets might not be buying it — Bank stocks plunged around the world even as President Joe Biden tried to assure the public that the U.S. banking system is safe.

Moody’s Investors Service placed six U.S. banks under review for ratings downgrades late Monday: First Republic, INTRUST Financial Corporation, UMB Financial Corporation, Zions Bancorporation, Western Alliance and Comerica.

Must read: How it went down this weekend — Several of my POLITICO colleagues led by Adam Cancryn, Ben White and Victoria Guida have a sweeping story on the behind-the-scenes debates that took place at the White House and the agencies last weekend as officials scrambled to stem a potential crisis. It all began with a highly skeptical Biden, who was dubious of anything that could be labeled as a taxpayer-funded bailout.

What’s next — The Fed’s rate hike roadmap is completely uncertain. Internal rifts are emerging among Democrats about the causes of the banking crisis and what should happen next. A top Republican is backing Biden’s approach, for now.

What you need to watch in the coming days:

— Fed rate hikes may be derailed: Victoria reports that the string of bank failures could upend the Fed’s efforts to curb inflation, now that the central bank is facing a financial stability problem. “[T]hey’re in a position where if they hike [half a percentage point] at the next meeting, that’s gasoline on the fire,” said John Fagan, who led the Treasury Department’s markets room from 2014 to 2018. February inflation numbers will be released later this morning.

— Barney Frank vs. Elizabeth Warren: The former House Financial Services Chair doesn’t think Trump-era banking rollbacks from 2018 led to the downfall of Signature Bank, where he served on the board. But Warren says they’re a big reason why Signature and SVB weren’t prepared for financial shocks and that the 2018 law should be repealed.

STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.

— The big picture for Democrats: The Frank-Warren clash is a preview of what’s to come for Democrats more broadly, and may make for an awkward week in the Senate. Moderate Senate Democrats, including those up for reelection in 2024, probably won’t disown the 2018 changes that they helped shepherd through Congress, but Warren and other critics want to make it the focus of the discussion. Biden is also highlighting Trump rollbacks and says he plans to ask Congress and the regulators to strengthen rules for banks. Senate Majority Leader Chuck Schumer and House Minority Leader Hakeem Jefferies said in a joint statement that “Congress will be looking closely at the causes behind the run on Silicon Valley Bank and other banks and how we can prevent a similar crisis in the future.”

— Patrick McHenry and the GOP: The House Financial Services chair is standing behind the government’s response. He told Sam that “the important thing is to convey that the regulators have the power and tools necessary to get us through” and that “I’m confident in their ability to do the right thing.”

A few other prominent Republicans, especially those with White House aspirations, have been a little less willing to endorse the Biden administration’s handling of the crisis, and some have started to make SVB the next target of the “anti-woke” movement. We’ll see how many GOP politicians opt to follow McHenry’s lead.

— The bank lobby speaks: The Bank Policy Institute, which represents mega- and regional banks, issued its first public statement in the wake of the meltdown and offered an early assessment of what went wrong. The group said the failures of SVB and Signature “appear to reflect primarily a failure of management and supervision rather than regulation.”

A message from Apollo Global Management:

Regulatory Corner

Fed plans review of what went wrong — Federal Reserve Vice Chair for Supervision Michael Barr will lead an assessment of whether the central bank failed to properly oversee Silicon Valley Bank. The review’s findings will be publicly released on May 1.

Better Markets President and CEO Dennis Kelleher says the Fed can’t do a thorough and independent investigation of itself and should instead ask Justice Department inspector general Michael Horowitz to appoint an IG to conduct the review. Horowitz chairs the Council of the Inspectors General on Integrity and Efficiency.

ICBA applauded the Fed’s move and urged other agencies to conduct reviews of how they handled SVB.

Larry Summers says it’s Barr’s moment — The former Treasury secretary tweeted: “I am very optimistic about Michael Barr … he has a major opportunity & major obligation to provide leadership to the entire regulatory system”.

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Fly Around

Ken Griffin says capitalism is ‘breaking down’ — FT: “There’s been a loss of financial discipline with the government bailing out depositors in full.”

BuzzFeed had most of its cash at SVB — Reuters: “The digital media firm said it had about $56 million in cash and cash equivalents at the end of 2022.”

Biden approves Arctic oil project — WSJ: “The Biden administration approved the massive Willow oil-drilling project in the Alaskan Arctic over the objections of environmentalists and many Democrats who wanted the project scuttled.”

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