Rep. Maxine Waters on Silicon Valley Bank failure: 'This is all about regulation'

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In the wake of Silicon Valley Bank's failure, Representative Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, said Tuesday a rollback in capital requirements is to blame for the collapse and said hearings will be held soon to better understand what went wrong.

"This is all about regulation, and this is all about the fact that at some point in time, there was great advocacy for making sure that the regional banks and smaller banks didn't have to comply with some of the rules that perhaps would not have allowed them to get into [this situation]," Waters told Yahoo Finance Live in an interview on Tuesday.

Waters pointed to a 2018 law Congress and the Trump administration approved for the failure in Silicon Valley Bank. This law loosened capital requirements and liquidity tests, and subjected smaller regional banks — including Silicon Valley Bank — to less onerous oversight.

"[Republicans] were absolutely pleased that they were deregulating, and I think that is something that really has helped to cause a lack of...oversight," Waters said.

Waters' comments come after the Federal Reserve announced Monday its Vice Chair for Supervision, Michael Barr, will lead a review of the supervision and regulation of Silicon Valley Bank in light of the bank's failure last week. The review will be publicly released by May 1

"Flexibility … was given by this legislation to ensure that they didn't have to follow the rules of the bigger banks," Waters said. "So some of them are trying to protect the regionals and smaller banks and saying we were crippling their ability to be successful with the rules that were too tough."

Waters called for a repeal of the 2018 legislation and said strengthened liquidity and capital requirements should be restored.

Waters also pointed to the issue that SVB, in searching for higher earnings, opted to invest deposits in longer-term, higher-yielding bonds — bets that turned sour when the Fed raised interest rates, creating a hole in their capital cushion. Waters said she will be scrutinizing why 90% of SVB’s depositors were uninsured and what role that played in the collapse of the bank.

'Everything is on the table'

Waters pledged to hold hearings as soon as lawmakers can and understand not just what happened, but whether Silicon Valley Bank chief executive Greg Becker's stock sale just weeks before the bank's collapse should be investigated.

Becker sold some $3.6 million worth of SVB Financial (SIVB) stock, the former parent company of Silicon Valley Bank, in late February, less than three weeks before SVB's failure.

When asked whether executive compensation clawbacks should be on the table, Waters said "absolutely."

"Much of what we're dealing with now relative to stock sales and bonuses by top management is rumor," Waters said. "I don't have any facts on that. But we are going to investigate. We're going to have our hearings that will begin to open up what really took place and everything is on the table at this point."

Waters also said the view from some Republicans that perhaps social media played a role in perpetuating the banking crisis will "go out the window" when the facts prove regulation needs to be tightened. According to a report from Politico on Tuesday, Waters will also return $2,500 donated to her campaign by SVB back in 2020

Stablecoin legislation 'ready to go'

Along with Silicon Valley Bank's failure, which resulted in market turmoil, Circle's USDC (USDC-USD) stablecoin broke its peg to the dollar over the weekend after the firm revealed it had $3.3 billion in cash parked with Silicon Valley Bank.

USDC's peg to the dollar was restored after the government said late Sunday all deposits stuck in Silicon Valley Bank would be guaranteed.

Circle is calling on Congress to urgently pass legislation to regulate stablecoins, and Waters has been working closely with House Financial Services Chair Patrick McHenry (R-NC) since last year on legislation to regulate stablecoins.

Waters said legislation could be passed in days when Congress returns to Washington, D.C.

Stablecoin legislation had been held up over disagreements regarding the handling of digital wallets and state-level crypto rules, but Waters said both sides had solved most of the outstanding issues. The major remaining roadblock holding up passage of the legislation was the change in control of the House to Republicans.

"I believe the legislation could be passed when we get back to Congress in a few days," Waters said. "We had just about solved all of our problems. The only thing that interfered, I think, with its passage was the anticipation that the House was going to change... so I think it's ready to go and we have resolved most of our issues. I think we can get it done."