AP Photo/J. Scott Applewhite
- In 2018, Sen. Joe Manchin was one of 13 Democrats to vote for easing some banking regulations.
- The rollback of those regulations meant that Silicon Valley Bank was subject to less scrutiny.
- Now, Manchin says he thinks differently about his vote, but says it wasn't a mistake at the time.
Back in 2018, Senator Joe Manchin was one of 13 Democrats who voted to roll back bank regulations that likely would've set off red flags before Silicon Valley Bank's collapse.
That vote has come under renewed scrutiny after the abrupt shuttering of Silicon Valley Bank (SVB) and subsequent bailout of its depositors.
Senators Bernie Sanders and Elizabeth Warren are among the progressives pointing fingers at the lawmakers who helped usher through that 2018 legislation, which took away oversight measures for midsize banks like SVB.
When asked by CNN's Manu Raju if he'd vote the same way as he did in 2018, Manchin replied: "Oh, no, you look at it differently now. You'd never thought this would have happened in the smaller banks."
Manchin also told Raju, when asked about the possibility of more regulations, that he was open to adjustments, as long as they didn't lead to overregulation and force smaller banks out of business.
The banking world has been in a whirlwind over the past few days following SVB's collapse, especially after federal regulators bailed out the bank's depositors — a move that received criticism from both Democratic and Republican lawmakers.
Democrats seized on the opportunity to blame Trump-era rollbacks of the Dodd-Frank law as a major factor in SVB's fall. First passed in 2010, the Dodd-Frank Act was created to protect consumers from predatory financial behavior following the 2008 financial crisis, but in 2018, some Democrats joined Republicans in sending a bill to former President Donald Trump's desk that would weaken scrutiny over banks.
Specifically, the rollbacks raised the threshold for regulation standards — essentially assessing how a bank would respond to financial shocks, like an increase in interest rates — from $50 billion to $250 billion, meaning the vast majority of banks with under $250 billion in assets wouldn't face increased oversight.
"The legislation that got passed in 2018, they raised the point at which banks had to undergo stress tests — they raised that from 50 billion to 250 billion," Dean Baker, a senior economist at the Center for Economic and Policy Research who predicted the 2008 housing bubble crash, told Insider. "At 50 billion, obviously, Silicon Valley Bank was well over that. They definitely would've been subject to a stress test."
SVB held $212 billion, putting it right under that newer threshold. Having a stress test in place could have helped prevent the bank's collapse by finding weak points in the company's investment strategy before they led to losses.
Manchin did tell Raju that it was not a mistake to vote through that 2018 legislation, or at least it wasn't at the time.
"The Federal Reserve could and should have done more. The Fed retains full authority over banks like Silicon Valley Bank and Signature Bank," Manchin said in a statement to Insider. "When the industries that propped up these banks were publicly flailing, alarm bells should have rung at the Fed and additional oversight should have been performed. No law prevented the Fed from acting."
Other Democratic lawmakers who also voted for the 2018 legislation are similarly standing by their decisions.
Virginia Sen. Mark Warner, for example, told ABC News on Sunday that the law "put in place an appropriate level of regulation on midsized banks."
"And what we've got to focus on right now is how do we make sure there's not contagion, and at the same time, you know, believe that the SVB can be acquired," he said.
And former Rep. Barney Frank — the co-author of the original Dodd-Frank Act — told Bloomberg that he doesn't think the Trump-era rollbacks of the law are to blame for SVB's shutdown.
"I don't think that had any effect," Frank said. "I don't think there was any laxity on the part of regulators in regulating the banks in that category, from $50 billion to $250 billion."
Regardless of who is to blame, lawmakers want to ensure that nothing like this can happen again. On Tuesday, Warren tweeted that "banking should be boring."
"Anyone who wants to take on a lot of risk to make a lot of money should not be in banking," Warren wrote. "We need to get rid of the Trump banking bill and go back to better regulation to make banking boring again."
California Rep. Katie Porter is reportedly working on legislation to do just that, and the Federal Reserve and Justice Department will be conducting internal reviews to determine what exactly led to SVB's collapse.