Six key players to watch in the banking crisis

The Silicon Valley Bank collapse has drawn new attention to the fragility of the US financial system and the government’s role in overseeing it.

This week, Democrats have debated approaches to dealing with the crisis, with progressives calling for stricter rules and moderates initially opposing them.

The latest: Here’s why the ‘too big to fail’ banks bailed out the First Republic

While the Biden administration rejected the idea of ​​a 2008-style bailout, Democrats are questioning what the road ahead might look like, with tech industry professionals, lawmakers and activists coming down on different sides of the issue.

“Who stands strong and bold and says: You were wrong, boys. Here’s the reality,” said Tim McCarthy, the former president of Charles Schwab who currently serves as co-CEO of marketGOATS. “Here’s the true story.”

Here are the six key players to watch out for in the banking crisis.

Michael Barr, Vice Chairman for Supervision at the Federal Reserve

Michael S. Barr, nominee to serve on the Board of Governors of the Federal Reserve System, is sworn in during his nomination hearing before the Senate Banking, Housing and Urban Affairs Committee on Thursday, May 19, 2022.

Barr does not have the type of job that is often forward thinking for most Americans, working at an agency that is considered rather obscure and complicated to many outside of the financial world.

But the top Fed regulator is expected to play a central role as Silicon Valley Bank’s evolution continues to inform new political and policy considerations in Washington and the West Coast.

In the coming weeks, Barr will be tasked with conducting a sweeping assessment of how the Fed ran supervisory practices for SVB as officials search for answers about what led to its demise. He will also examine the rules and is expected to present a memo later this spring.

“This is going to be very profound,” McCarthy said, indicating that it is likely to have a ripple effect beyond just discussions among lawmakers in D.C.

However, Barr is under his own pressure.

The Fed is facing intense bipartisan criticism over whether the agency and other state regulators missed the growing signs of SVB’s dire financial situation. As the Fed’s head of rules and oversight, Barr is likely to field questions from lawmakers about his role.

Late. Sherrod Brown (D-Ohio) Chairman of the Senate Banking Committee

Late.  Sherrod Brown (D-Ohio)
Late. Sherrod Brown (D-Ohio) speaks to reporters before the weekly Senate Democratic Policy Luncheon Wednesday, March 15, 2023.

At first, a populist senator from the Rust Belt may seem far removed from Northern California’s tech-centric, venture capital-flowing bubble.

But Brown’s role as chairman of the Senate Banking Committee makes him a key player in the regulatory debate in Congress and beyond, especially as SVB’s demise continues to disrupt a number of sectors.

In his capacity as chair of the committee, Brown urged officials to launch a full-fledged investigation into the major financial failure and sent a memo outlining the areas vulnerable to a collapse of such magnitude.

“These banks were over-concentrated and over-reliant on particular industries and operated with an exorbitant percentage of uninsured deposits,” Brown wrote in a letter to the Treasury Department and the Fed. “Furthermore, the banks also lacked adequate risk management.”

Brown is locked with his fellow progressives, such as Sens. Bernie Sanders (I-Vt.) and Elizabeth Warren (D-Mass, on financial regulation, but he is also well regarded by moderate colleagues and Biden.

His location in Ohio—the red-leaning state that Democrats still haven’t completely abandoned—allows him to translate how the complexities of the SVB crisis might affect people at home.

Brown sees more regulation as a good early step.

“You must strengthen the railings on banks to prevent failure and reduce contagion and panic risks to protect consumers and small businesses and to keep small banks and credit unions on Main Street,” Brown noted at another point in his letter, giving a nod to his middle and lower income priorities.

Late. Elizabeth Warren (D-Mass.)

Late.  Elizabeth Warren (D-Mass.)
Sen. Elizabeth Warren (D-Mass.) speaks with a reporter as she arrives in the Senate chamber for a vote on a nomination Wednesday, March 15, 2023.

Warren, the liberal senator from Massachusetts, is a fierce advocate of strict financial regulation and consumer protection. She is undoubtedly also the banking sector’s biggest agitator. For progressives critical of the financial industry, she is their best Capitol Hill champion.

The senator’s position between left-wing Democrats, who love her, and big banks, who feel less warm, puts her in the spotlight of the collapse.

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To the delight of her allies, she has been at the forefront of the issue since it first became public, sharply condemning leaders and lobbyists who pushed for looser rules while offering a political blueprint for the future.

“Elizabeth Warren has been right all along about the reform of the financial sector. After the Great Recession, she predicted that we would be back here without meaningful accountability, and sure enough, here we are,” said Charlotte Clymer, an author and Democratic political strategist.

“At what point will her colleagues follow her lead and ensure that the most irresponsible players in banking and finance are not allowed to continue to put our country at risk through a lack of consequences and prevention?”

But her critics see her influence as more troublesome.

“If you’re a budget balancer, or at least a fiscally responsible politician on the Democratic side, the problem you have is you’re going to have people to the left of you using it as an opportunity to push their own electoral preferences,” McCarthy said .

“They are afraid to speak out because they feel the more left wing of the party will criticize them for trying to be able to sustain programs.”

Lael Brainard, Director of the National Economic Council

Federal Reserve Board Vice Chairman Lael Brainard, seen Sept. 23, 2022, in Washington. Brainard was named President Biden’s top financial aide on Tuesday. (AP Photo/Manuel Balce Ceneta)

Brainard, an economist and former Fed official, did not have a chance to test his new role as head of the National Economic Council until a major financial disaster struck.

In his previous roles at the Fed, including most recently as vice chairman, Brainard strongly warned against deregulation of the industry that had previously caused significant turmoil in the US economy.

How she got here: Biden names Fed’s Lael Brainard as next top economic aide

In elevating Brainard to lead the NEC — one of the most influential appointed positions in government — Biden entrusted her to be an ambassador between the White House and key agencies and lawmakers on Capitol Hill. Any proposed legislative action could face obstacles given the nature of the Republican-controlled House and a narrow Democratic majority in the Senate.

This week, the business publication Barron’s listed Brainard as one of the “100 Most Influential Women in American Finance.”

Rep. Ro Khanna (D-Calif.)

Rep.  Ro Khanna (D-Calif.)
Rep. Ro Khanna (D-Calif.) is seen during a news conference with climate activists on Wednesday, July 27, 2022, to urge President Biden to declare a climate emergency.

Khanna is uniquely positioned to address the bank’s failure and articulate his assessment of how regulators could have averted such a dramatic collapse.

The California congressman is at the intersection of two often competing forces. He is a leader in the progressive movement clamoring for political consequences on Capitol Hill, but also represents Silicon Valley and must navigate all of its diverse technological interests.

As a progressive, he has been critical of more moderate Democrats’ reluctance to impose stricter regulations on banks. He lamented the SVB’s past work in asking the government for fewer restrictions in a recent cable news segment, putting him at odds with some centrists in his party.

Read more: Silicon Valley, signature banks lobbied hard to loosen banking regulations

“They lobbied to weaken the Dodd-Frank restrictions,” Khanna told MSNBC’s “Morning Joe,” noting that he voted against the 2018 bill to loosen the banking law.

“They lobbied me and others to weaken them, to exempt them from the regulations that could have prevented this crisis,” he said.

Jeff Zients, White House Chief of Staff

Incoming White House Chief of Staff Jeff Zients attends an event with President Joe Biden to thank outgoing White House Chief of Staff Ron Klain in the East Room of the White House in Washington, Feb. 1, 2023. (AP Photo/Susan Walsh, File)

Biden’s new chief of staff stepped into the role at a key moment. Biden and administration officials just said goodbye to Ron Klain, a beloved and longtime aide to the president who stepped down after a midterm cycle ripe with positive Democratic surprises. Many Democrats hoped Zients would pick up the positive momentum.

Some former bank executives have criticized Democrats for not doing an effective job of managing the party’s competing wings. On the one hand, progressives want to be much tougher on the banks in favor of, they say, a fairer system for the majority of Americans. Moderates, for their part, want to take a more balanced approach, especially in communicating what their party needs to do practically in contrast to Republicans.

“Congress must act:” Biden urges Congress to crack down on failed bank CEOs

As chief of staff, Zients likely has to juggle these differences in views while helping Biden stay on message. Multiple outlets reported that he and Brainard updated Biden on developments surrounding SVB immediately last Friday and kept him informed late into the weekend.

Zients’ resume shows relevant experience to help demystify the bank’s crisis, having navigated both Wall Street and Silicon Valley during a stint on the board of Facebook, and also as NEC director under former President Obama.

He recently began publicly touting the administration’s response.

“The Biden-Harris administration moved quickly to stabilize the banking system without putting taxpayer dollars at risk — a priority for us,” Zients wrote on Twitter Friday afternoon. “@POTUS is making specific proposals Congress can pass now to hold senior bank executives accountable. Let’s get it done.”

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