Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. Banks will open this morning. Depositors will have access to their accounts. And three days after the collapse of Silicon Valley Bank sent shockwaves across Wall Street and the Beltway, Washington will start to unpack what the hell just happened. The federal government’s last-minute rescue for customers of SVB and Signature Bank – a regional powerhouse that was shut down by New York regulators on Sunday — was designed to calm markets that had been shaken by last week’s bank run. But while the FDIC and Fed facilities might placate the venture capitalists who had clamored for relief, concerns remain about whether it will be enough to smooth things over with skittish depositors who’ve now absorbed a weekend’s worth of “failed bank” headlines. Regulators are “worried about tomorrow morning,” Rep. Stephen Lynch (D-Mass.) told MM after a Sunday night briefing with agency officials. “They acted quickly, decisively and did the best job they could under the circumstances but there’s still that nervousness out there.” Here’s what else we’re thinking about as policymakers sift through the weekend’s chaos: Why didn’t the regulators catch this? While Silicon Valley Bank’s demise was unexpected, the problems plaguing its balance sheet could have been spotted a mile away. The bank ballooned in size during a tech-fueled bull run and more than 90 percent of its deposits weren’t insured. What’s more, its investment portfolio was heavily exposed to securities that would lose value as interest rates climbed, which left it susceptible to losses. “For every supervisor, rapid growth is a warning sign. Rapid growth in an asset class, rapid growth in the bank as a whole, because it almost always outstrips the risk management capacities of a bank when they grow so quickly,” Former Fed Governor Daniel Tarullo, who led the central bank’s regulatory policy in the Obama administration, said in an interview with Victoria Guida. “That’s the kind of thing that should’ve been a warning sign." Senate Banking’s top Republican Sen. Tim Scott criticized the rescue in a statement and said there needs to be accountability from “both from the banks and our regulators. We deserve to know what exactly happened and why.” What does this mean for bank regulations? Progressives plan to use SVB’s collapse as a cudgel to force reforms. In a joint statement, Senate Banking Chair Sherrod Brown (D-Ohio) and Rep. Maxine Waters of California, the ranking Democrat on House Financial Services, said they planned to focus on “how to strengthen guardrails for the largest banks.” As Zach wrote earlier Sunday, the recent turmoil will embolden Democrats and regulators who’ve been angling to reassess the capital buffers that are designed to help large financial institutions weather downturns. Rep. Katie Porter, a California Democrat who’s running for Senate, told MM that she would introduce legislation to undo a 2018 law that unwound some of Dodd-Frank’s requirements for mid-size and regional financial institutions. “Make no mistake, Silicon Valley Bank would have been covered by — was covered by Dodd-Frank — before colleagues on both sides of the aisle voted to weaken the regulation,” Porter said. “If I were one of the people who had voted to deregulate, I wouldn't be going on TV this weekend talking about how banking regulators should have done a better job.” How does Washington view the role of social media in the bank run? The $42 billion bank run that ultimately crashed SVB was spurred on by investors and startup founders alarmed by the bank’s move to stabilize its balance sheet to address interest rate risks. (H/T to the WSJ for pulling together a rundown of how fears of the bank’s failure spread across Silicon Valley WhatsApp and Slack channels). “This was the first Twitter fueled bank run,” said House Financial Services Chair Patrick McHenry (R-N.C.) in a statement. “At this time, it is important to remain levelheaded and look at the facts—not speculation—when assessing the right path forward.” Former House Financial Services Chair Barney Frank, who served on Signature’s board, told Zach that the New York bank was hit with a run generated by “the nervousness and beyond nervousness from SVB and crypto.” The bank’s digital assets business made it the “unfortunate victim of the panic that really goes back to FTX.” IT’S SOMEHOW ONLY MONDAY — What questions should we be asking? Do you know of anywhere that serves coffee by IV? Have tips, gossip or scoops? Let Sam know at ssutton@politico.com and Zach at zwarmbrodt@politico.com.
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