Financial Regulation

New Regulations Won't Stop the Next Bank Collapse

Plus: Another campus free speech debacle, foreign cheese groups lose Gruyere trademark case, and more...


"I believe in ready, aim, fire—not ready, fire, aim," said Maine Sen. Angus King, an Independent who caucuses with Democrats, in a discussion about passing new financial regulation in the wake of Silicon Valley Bank's (SVB) collapse. Somewhat astoundingly, he's not alone among left-of-center lawmakers in resisting the temptation to rush through new banking rules in response.

Plenty of Democratic lawmakers are angling for new regulations, of course. President Joe Biden, Sen. Elizabeth Warren (D–Mass.), and many others have been quick to blame SVB's problems not simply on poor decisions by private actors but on an alleged lack of oversight of midsize banks. Specifically, they blame a Trump-era rollback of Dodd-Frank regulations that said banks with $50 billion or more in assets were subject to increased regulatory scrutiny. Under the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act, this threshold for stricter regulation was raised to $250 billion.

"I'm going to ask Congress and the banking regulators to strengthen the rules for banks, to make it less likely this kind of bank failure would happen again," said Biden on Monday. Warren, meanwhile, has introduced legislation that would repeal the 2018 rollback.

But whether SVB's situation would have been different had these regulations remained in place is highly questionable. "You knew just by looking at this bank that it was growing at exceptionally rapid rate, which should have been a red flag to look at," Thomas Hoenig with the Mercatus Center at George Mason University told Marketplace. "So I don't blame it on so much on the rollback of Dodd-Frank. I blame it on the fact that the bank management didn't understand the fact that interest rates change and they need to be managing their portfolio accordingly."

Besides, even without the stricter rules, bank regulators still could have acted but did not. So, the idea that new regulations are needed to stop the next midsize bank collapse is suspect, to say the least.

Of course, it's not surprising that some Democrats are using this debacle to push for giving government more control over banks. (Never let a good crisis go to waste, right?) What is surprising is that some Democrats are resisting calls to blame the 2018 regulatory rollback or to rush through new regulations.

"Moderate Senate Democrats who voted to loosen regulations on midsize banks in 2018 are standing by their votes in the wake of Silicon Valley Bank's collapse, joining Republicans in resisting enhanced scrutiny for financial institutions," reports Sahil Kapur at NBC News:

Sens. Tom Carper, D-Del., and Jeanne Shaheen, D-N.H., both said they stand by their votes for the 2018 deregulatory bill.

"It's early. I think we need to complete the investigation of what actually happened at Silicon Valley Bank. All the regulation in the world isn't going to fix bad management practices, and it appears that that's one of the problems at SVB," Shaheen said, while keeping the door open to revisiting the bill if the findings sway her….

Asked whether the 2018 bill was a mistake, Sen. Michael Bennet, D-Colo., responded: "I would say no. The work that I did on it was targeted toward small banks and toward rural banks."

Sen. Mark Warner (D–Va.) also defended the 2018 rollback while appearing on ABC's This Week last Sunday. "I think it put in place an appropriate level of regulation on midsize banks," he said.

Sen. Tim Kaine (D–Va.) told VPM he voted for the 2018 regulatory rollback "because my community banks had been telling me about Dodd-Frank challenges for years, and they strongly believed and still believe that it was the right thing." He suggested that lawmakers should wait for the Federal Reserve review of what happened with SVB before passing any new policies.

"It appears that the leading causes of the failure of Silicon Valley Bank were managers who maintained a woefully under-diversified asset sheet, and a small group of investors who sparked a panic that led depositors to withdraw money at a rate that would be unsustainable for any bank," said Sen. Chris Coons (D–Del.) in a statement. "SVB was subject to federal and state supervision, and it's not clear what additional regulatory requirements might have yielded a different outcome."

Obviously, senators who voted for the 2018 change have self-interested reasons to resist blaming it for SVB's collapse. But for a change, lawmaker self-interest is working out in favor of rationality and restraint.

Republicans, meanwhile, are also highly critical of the idea that the 2018 law is to blame for SVB's problems or that undoing it is necessary to prevent the next midsize bank collapse.

Bank regulators "had the tools that they needed," said Rep. John W. Rose (R–Tenn.). "Based on all of my conversations with the community bankers in Tennessee, had they been doing what Silicon Valley Bank was doing, they insist that the regulators would have been very much on top of them."

To some Republicans, Democrats' zeal to blame deregulation is designed to deflect from the role that inflation, interest rate hikes, and Democratic policies played in SVB's problems.

"I think President Biden and others…are simply trying to distract from the fact that it was the inflation that their policies created that is probably the biggest culprit to driving the run on the bank," said Rep. Bryan Steil (R-Wis.).


Two takes on the Kyle Duncan debacle at Stanford and campus free speech norms. Duncan, a federal judge on the U.S. Court of Appeals for the 5th Circuit, was invited to give a talk to Stanford University law students. Duncan was protested by about 100 students, who first booed those entering the talk and then disrupted it so badly that Duncan couldn't continue.

School administrators eventually intervened, asking everyone to quiet down. But Tirien Steinbach, the law school's associate dean for diversity, equity, and inclusion, asked the judge if he thought speaking on campus was "worth the pain that this causes and the division that this causes," as if he should feel guilty for daring to speak in public because some people might be upset. "Do you have something so incredibly important to say about Twitter and guns and COVID that that is worth this impact on the division of these people who have sat next to each other for years, who are going through what is the battle of law school together, so that they can go out into the world and be advocates?" Steinbach said.

"Of course the educational value of a federal judge outlining his thinking on matters likely to come before him is worth the subjective upset it causes a subset of law students acculturated to feel harmed by the physical presence of people whose jurisprudential values they hold in contempt," writes Conor Friedersdorf at The Atlantic:

Indeed, the educational value might be greatest for the most upset students if the administrators at Stanford stopped indulging their catastrophizing and started showing them that they are perfectly capable of engaging substantively with any and all viewpoints.

Because that's part of the job of lawyers! If they can't handle being on the same college campus as a judge whose views they hold in contempt without experiencing harm, how are they supposed to excel before, say, a judge who sent one of their innocent clients to prison, or to represent a rapist as a public defender, or to sway a Supreme Court justice who isn't totally convinced that torture is wrong? To be good lawyers, they must understand the legal arguments on all sides of issues, particularly the issues that they care about most, and especially when the arguments in question are advanced by someone who decides federal cases.

Lawyer Ken White writes at The Popehat Report that Duncan—who "doesn't have Twitter so he uses Fifth Circuit opinions for pronoun rants"—is no free speech hero. "Judge Duncan is part of a culture of turning the federal judiciary into a conservative grievance LiveJournal. He's also part of a pathetic culture of conservative victimology and free-speech hucksterism."

But White also reserves plenty of criticism for the students who shouted him down:

Students think that they should be able to dictate which speakers their peers invite, who can speak, what they can say, and who can listen. They're not satisfied with the most free-speech-exceptionalist system in the world that lets them respond to speech by assembling, protesting, and reviling people of authority like Judge Duncan. They demand the right not just to speak, but to control the speech of others. That's straight-up thuggish, an aspiration born of a fascist soul. These are law students. They are training to express themselves for a living. If their view is "we can't respond to awful speech, we can only stop it from happening," then they're going to be terrible lawyers.

Law students also persist in imagining that they invented the world. They believe they discovered that free speech laws and norms protect awful speech and awful people. They believe they discovered the plea "yes, but what you don't understand is that this speech is really bad." They believe that they are so self-evidently right, good, trustworthy, and noble that it's obvious that we should let them decide who talks and who doesn't. And they are too hubris-swollen — not too stupid, but too drunk with self-righteousness — to see that exceptions to free speech have always been used most harmfully against the powerless, and always will be. They're too full of themselves to see that "let a crowd decide who is allowed to speak" is a horrific norm to promote with grotesque historic resonance.


Cheese made in the U.S. can be called Gruyere, says the U.S. Court of Appeals for the 4th Circuit. The ruling stems from grievances by Swiss and French cheese consortiums, which argued that the word Gruyere could only be used to describe cheese made in the Gruyère regions of France and Switzerland. They filed an application with the U.S. Patent and Trademark Office to register the word Gruyere as a certification mark. The U.S. Dairy Export Council, Atalanta Corporation, and Intercibus Inc. objected, arguing that the word Gruyere is generic and not eligible for protection.

The Patent and Trademark Office agreed that it could not be registered and the consortiums took the matter to federal court, which also agreed with the Dairy Export Council. The foreign cheese groups appealed, bringing the matter before the 4th Circuit.

"Like a fine cheese, this case has matured and is ripe for our review," wrote Chief Judge Roger L. Gregory in the court's opinion. "We conclude that the term 'GRUYERE' is generic as a matter of law and affirm the decision of the district court."


• Poland is pledging to send fighter jets to Ukraine, which would make it the first NATO member to do so.

• A flight attendants union is pressing to end free airplane trips for babies, saying that children under 2 years old riding on parents' laps is too dangerous. As evidence, they cite the death of one lap-riding child in a 1989 plane crash and the death of another child in a 1994 plane crash. But 111 other people (presumably not riding on other passengers' laps) were killed in the first crash and 20 other passengers were killed in the second.

• "North Dakota's Supreme Court on Thursday refused to revive a strict abortion ban previously blocked by a lower court, finding that the ban violates a state constitutional right to abortion to preserve the mother's life or health," reports Reuters. "The ruling means that abortion remains legal in North Dakota for now."

• The Scandinavian prison model "looks at the loss of liberty and separation from community as the punishment. During that separation, life should be as normal as possible so that people can learn to make better choices without being preoccupied by fear and violence," writes Anita Chabria in a Los Angeles Times piece about efforts to bring Scandinavian ideas to California prisons.

• Utah has banned abortion clinics. The state still allows abortions at up to 18 weeks of pregnancy, but they must take place inside a hospital.

• Police found a blunt in their car, so they seized their kids.

• The debate Hugh Hefner won and William Buckley lost.

• Florida Republicans are now pushing a six-week abortion ban.

• "In Oregon, the state's inability to run an accurate drivers license database means people are being locked up even though their vehicles are properly registered," notes Tim Cushing at Techdirt.