Shortly after the second-largest bank collapse in United States history, many liberals took to social media to place the blame on former President Donald Trump.
“By the way, Trump deregulated banks like Silicon Valley Bank, which failed Friday,” Robert Reich, who served as labor secretary under former President Bill Clinton, posted on Twitter Friday after news that Silicon Valley Bank had been shut down by FDIC regulators in an effort to protect customers as the bank faced a liquidity crunch after losing $2 billion.
Reich was joined by other liberals on Twitter attempting to place the blame on Trump for signing a bipartisan bill in 2018 that rolled back elements of Dodd-Frank.
“It seems likely that this could have been avoided if it weren’t for the roll-backs by the Trump administration,” journalist Ed Krassenstein tweeted.
In 2018 President Trump signed a bill that rolled back Dodd-Frank regulations on banks like Silicon Valley Bank.
Prior to the bill, the threshold for which banks were required to submit resolution plans for their rapid and orderly resolution to the FDIC was set at $50 billion…
— Ed Krassenstein (@EdKrassen) March 11, 2023
Quick reminder:
50 Republican senators and 17 Democratic senators voted to ignore warnings and weaken risk regulations for Silicon Valley Bank.
Donald Trump signed the bill into law.
And now the bank is the 2nd biggest bank collapse in American history. https://t.co/a8XEifQidA
— David Sirota (@davidsirota) March 11, 2023
Donald Trump slashed rail regulations and a toxic train derailed. Donald Trump slashed banking regulations and a major bank failed. if only we could find some common thread linking these events
— Jeff Tiedrich (@itsJeffTiedrich) March 11, 2023
Good time to reup this from 2018. https://t.co/CqK7qFLGdF
— Ron Filipkowski (@RonFilipkowski) March 11, 2023
EJ Antoni, research fellow in regional economics with The Heritage Foundation’s Center for Data Analysis, told FOX Business on Saturday that the collapse had “nothing to do with Trump or Dodd-Frank” and more to do with an “unusual confluence of events.”
Antoni explained that the bank “dealt almost exclusively with tech firms which usually rely on continuously rolling over large debts” which means that the firms are “not paying off their debt but simply taking out new debt to pay off the old.”
“Second, SVB put a disproportionate amount of its cash into long-term bonds. Ordinarily, that’s not a bad strategy, but it’s unwise when interest rates are zero because those rates must rise eventually,” Antoni said. “When rates rise, bond prices fall. This is because an investor with the choice to buy an existing bond at a low rate or a new bond at a high rate will choose the new bond since it’s a better return on investment. If you want to sell the old bond with its lower interest rate, you must be willing to sell it at a discount; otherwise, no one will buy it.”
Antoni explained that SVB’s undiversified clientele meant “too many depositors needed cash all at once” forcing the liquidation of bonds that had lost value and a “death spiral” quickly ensued.
“SVB had to sell its bonds at a loss to raise cash,” Antoni said. “Limited transactions like this would not have been catastrophic, and in fact happen regularly in the financial sector on a small scale.”
“SVB was a case of mismanagement that was made possible by the unrealistically low rates from the Federal Reserve,” Antoni told FOX Business.