Kevin Duffy on the Trump rollback of Dodd-Frank in 2018

As fate would have it, Silicon Valley Bank CEO Greg Becker lobbied in 2018 to raise the asset bar on the annual Dodd-Frank stress tests from $50 billion to $250 billion.  On May 24, 2018, when President Donald Trump signed “the biggest rollback of bank rules since the financial crisis,” SVB’s assets footed to $54 billion.  By the end of last year, they had mushroomed to $212 billion. 

Never mind that the rollback bill was signed by 33 Democrats in the House and 17 in the Senate.  The Left had its perfect scapegoat.  “Back-to-back collapses came after deregulatory push,” claimed The New York Times, shortly after the FDIC took control of SVB and Signature Bank, the second and third largest U.S. bank failures in history. 

Would it have made any difference?  The architects of the 2010 Dodd-Frank Act put in place a set of rules to prevent another mortgage crisis, never imagining that the next crisis would change its spots.  Truth be told, subjecting SVB to a rash of annual stress tests would not have saved the day.  Bank regulators have been looking for trouble in all the wrong places. 

~ Kevin Duffy, "Would Stress Tests Have Prevented the Failure of SVB? Probably Not," Mises.org, April 3, 2023

2013 Dodd-Frank stress test: government bond losses assumed temporary and not marked-to-market

Losses on securities held in the available-for-sale (AFS) or held-to-maturity (HTM) portfolios are projected other-than-temporary impairment (OTTI) over the planning horizon.  OTTI projections incorporate other-than-temporary differences between amortized cost and fair market value due to credit impairment, but not differences reflecting changes in liquidity or market conditions. 

Some of the AFS/HTM securities, including U.S. Treasury and U.S. government agency obligations and U.S. government agency mortgage-backed securities (MBS), are assumed not to be at risk for the kind of credit impairment that results in OTTI charges.

~ Dodd-Frank Act Stress Test 2013, p. 43, March 2013