Silicon Valley Bank: Under what regulation did it operate and why? | United States | Economy

banks in United State They are subject to regulations and laws created after the Great Depression that sought to prevent a new disaster of the banking system from existing in the country.

In 2010, after the crisis experienced by the North American country (2007-2009), the Dodd-Frank Wall Street Reform and Consumer Protection Act, better known as the Dodd-Frank Act, was created.

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This is a United States federal law that seeks, through various regulations, to subject financial institutions in the country, with assets of more than $50,000 million USD, to stress tests by the Federal Reserve (Fed) to ensure that they are robust. That is, they must regularly submit sell scenarios to the Fed.

In addition, Cesar Romero, Head of Research at Renta4 SAB, explains that he seeks banks to maintain a certain minimum amount of cash on their balance sheets to protect themselves from “shocks”, without preventing them from betting their investors’ money.

However, in 2018, when Donald Trump was chief United State, and changed the rule and raised the minimum assets to $250,000. That is, it loosened the base and reduced the amount of cash they had to keep on their balance sheets to protect themselves from the shock.

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This, according to Romero, has reduced the scrutiny of many of the regional banks in United Statefreeing smaller banks like Silicon Valley Bank and Signature Bank to invest more of their deposits and make more money for their shareholders.

In the face of this, the CEOs of regional banks in the United States have sought to limit the impact of these regulations. With the loosening of regulations on regional banks, these banks will have up to $4 billion more capital each year to lend. This exacerbated the growth in the assets of regional banks such as SignatureBank which expanded to include cryptocurrencies”, Romero Comments.

This is it Silicon Valley Bank It’s been operating under less stringent regulations than a large bank with more traditional portfolios than yours, which means it hasn’t been subjected to the stress tests that prior to 2018, they could see through the scenario, perhaps, a little more.