A pedestrian passes a Silicon Valley Bank branch in San Francisco, Monday, March 13, 2023. Credit: Jeff Chiu / AP

Maine’s two U.S. senators split Tuesday on President Joe Biden’s main response to the collapse of Silicon Valley Bank while debate swirled around whether a 2018 deregulation measure that both of them supported was partially to blame.

The California bank was seized by federal regulators after it collapsed on Friday in a run that contributed to a similar failure at New York-based Signature Bank, which failed over the weekend after nervous cryptocurrency investors pulled their money out.

The Biden administration responded quickly, announcing that executives of the bank would be fired and deposits above a federally insured threshold would be guaranteed. That money will come from another federal insurance fund that comes from fees on banks in a move that was aimed at calming financial markets and containing the damage.

Those moves have led to criticism, particularly from Republicans who fear community banks will be hit by more fees to replenish the fund. In a Monday statement, Sen. Susan Collins of Maine joined them by saying the Federal Deposit Insurance Corp. fund is there to “protect the savings of individuals, households, and small businesses” and not large corporations.

“There will likely be an unfair special assessment imposed on small community banks like those in Maine which serve working families and small businesses who use them for their checking and savings accounts,” she said.

Sen. Angus King, I-Maine, who caucuses with Democrats, supported the Biden administration’s “swift response” in a statement, saying the federal government had to “control the damage by reassuring Americans that their hard-earned bank deposits are safe.”

The two collapses are complicating upcoming decisions about how high the Federal Reserve should raise its benchmark interest rate in the fight against chronically high inflation. The Fed has been expected to vote at a meeting next week to keep raising rates.

Critics of Silicon Valley Bank have pointed to many red flags surrounding it, including its rapid growth since the pandemic, its unusually high level of uninsured deposits and its many investments in long-term government bonds and mortgage-backed securities, which tumbled in value as interest rates rose.

The bank also grew rapidly, with assets quadrupling in five years to $209 billion, making it the 16th-largest bank in the country. Roughly 94 percent of its deposits were uninsured because they exceeded the Federal Deposit Insurance Corporation’s $250,000 threshold.

That was the second highest among banks with more than $50 billion in assets, while Signature was fourth highest, according to ratings agency S&P. Both of those proportions made the banks susceptible to the risk that depositors could quickly withdraw money.

Many critics, led by Sen. Elizabeth Warren, D-Massachusetts, have also pointed to a 2018 law as softening bank regulations in ways that contributed to Silicon Valley’s failure. It was a major update of the Dodd-Frank banking regulation law that passed after the 2008 financial crisis.

Pushed by the administration of President Donald Trump with bipartisan support in Congress, including from Collins and King, the law exempted banks with $100 billion to $250 billion in assets from requirements that included regular examinations of how they would fare in tough economic times.

Silicon Valley’s CEO, Greg Becker, had lobbied Congress in support of the rollback in regulations. He also served on the board of the Federal Reserve Bank of San Francisco until the day of the collapse. But Maine banks also hailed the law. That included Kennebec Savings Bank in Augusta, whose president wrote glowingly about it in Forbes after it passed.

“This deregulation bill is a notable example of Congress listening to the people it represents and cooperating to make a significant difference in the lives of many consumers,” Andrew Silsby wrote.

There is no consensus among experts on whether the collapses would have happened under the old rules, especially since the law also gave the Fed more discretion in oversight. The regulator took later votes to reduce regulations and reduce the capital banks had to keep in reserve.

King broke with most of the Democratic caucus to vote for the measure, posting a point-by-point Medium rebuttal to progressive critiques at that time. He did not address a question about the 2018 law in his Monday statement. Collins said the measure did not cause the problems and placed some blame on spending under the Biden administration for driving inflation.

“SVB’s problems came about largely because it engaged in the risky practice of borrowing money in the short term while investing in long term bonds,” she said.

The bank failures will likely color an upcoming Fed review of rules that set out how much money large banks must hold in reserve. Members of Congress are also likely to advance their own proposals aimed at these scenarios, and King said he would be open to looking at changes.

“In the days and weeks ahead, I’ll be considering new guardrails and policies with my colleagues to reduce the chances we’ll see such similar economic threats in the future,” he said.

Associated Press writers Christopher Rugaber, Fatima Hussein and Paul Wiseman contributed to this report.

Michael Shepherd

Michael Shepherd joined the Bangor Daily News in 2015 after three years as a reporter at the Kennebec Journal. A Hallowell native who now lives in Augusta, he graduated from the University of Maine in...