Inflation, liquidity, and poor management and supervision led to collapse
Washington, D.C.--In an interview with Larry Kudlow on Fox Business, U.S. Senate Banking Committee Member and former Chairman Mike Crapo (R-Idaho) talked about the failed economic policies that contributed to the collapse of Silicon Valley Bank and Signature Bank over the weekend, noting that any attempt to blame the Economic Growth, Regulatory Relief and Consumer Protection Act is merely blame-shifting.
To watch the video, click HERE or the image above.
“This is simply blame-shifting by the President because he knows it’s his policies that caused this. This wasn’t just a Republican effort or Trump effort. There were 16 Democrats who voted for the bill, more than enough senators voting for this to beat a filibuster. Nothing in the Dodd-Frank reforms we put together did anything with regard to this crisis. We were dealing with the oppressive pressure of capital standards that were hurting smaller and mid-sized banks, and it worked. The issue we’re facing today is one of liquidity, not capital.
“The fact is that President Biden--through all of the spending that he did in the last Congress and the last two years--has driven inflation up to the point where wage earners have to get a 14.8 percent wage increase just to hold even with this kind of inflation. And when the Fed responded to push interest rates up, that’s what caused a liquidity crisis for these two banks. That is what happened, and then the supervisors didn’t adequately pay attention to what was happening in these banks. It had nothing to do with capital.
“The regulatory standards were not loosened in this area. These banks were following the same kind of strong standards that Dodd Frank required and they were not meeting the supervisory needs with regard to their interest rate risk. That could’ve been picked up by regulators. The bank leaders didn’t adequately protect the liquidity of their assets and the supervisors did not pick up on that quickly enough.
“The bottom line: this is not a capital issue. There is capital in these banks, and a buyer could get that capital, manage it properly, reduce the risk and any buyer would probably make money on this and keep the public from having to pay the cost of this fix.”