opinion | Elizabeth Warren: We can prevent more bank failures

Had Congress and the Federal Reserve not reversed the tighter oversight, SVB and Signature would have faced greater liquidity and capital requirements to withstand financial shocks. They should have run regular stress tests to uncover their vulnerabilities and shore up their businesses. But because those requirements were lifted when an old-fashioned bank run hit SVB‌, the bank couldn’t withstand the pressure – and Signature’s collapse was close behind.

On Sunday night, regulators announced they would ensure all deposits at SVB and Signature were returned at 100 cents on the dollar. Not just small businesses and nonprofits, but billion dollar corporations, crypto investors, and the very venture capital firms that started the bank run on SVB in the first place – all in the name of preventing further contagion.

Regulators have said banks, not taxpayers, will bear the cost of the federal insurance needed to protect depositors. We’ll see if that’s true. But it’s no wonder the American people are skeptical of a system that keeps millions of struggling student borrowers in limbo but steps in overnight to ensure billionaire crypto firms don’t lose a penny in deposits.

These threats should never have come about. We must act to prevent them from repeating themselves.

First, Congress, the White House, and banking regulators should reverse the dangerous Trump-era banking deregulation. Repealing the 2018 law that weakened rules for banks like the SVB must be an immediate priority for Congress. Likewise ‌Mr. Powell’s disastrous “cutting” of these rules has put our economy in jeopardy, and it must end — now. ‌

Banking supervisors also have to take a close look at our financial institutions to see where further dangers are lurking. Elected officials, including Senate Republicans, who had urged Mr. Powell to stave off higher capital standards just days before SVB’s collapse, must now call for stronger — not weaker — oversight.

Second, regulators should reform deposit insurance so that, both during this crisis and into the future, companies trying to payroll and otherwise conduct normal financial transactions are fully covered – while ensuring that the costs of protecting oversized depositors are covered by the be borne by financial institutions that do so pose the greatest risk. Never again should large corporations with billions of dollars in unsecured deposits expect or receive free government support.