Surpassing:After 2 banks collapsed, Sen. Warren blames the loosening of restrictions

Banks across the nation are Surpassingreassuring their customers that they will not collapse like Silicon Valley Bank and Signature Bank. Sen. Elizabeth Warren, D-Mass., says Congress and the Federal Reserve are to blame for bank failures.

"Remember after the crash in 2008, we understood that if you don't put pretty strict regulations on these big banks, they'll go out and boost their profits by taking on a lot of risks," Warren told NPR's Leila Fadel on Tuesday's Morning Edition.

"Then in 2018, the Republicans under Donald Trump said, no, we need to loosen those regulations," Warren said. "And they got some help from the Democrats and ultimately passed a bill that rolled back that kind of protection for banks that were bigger than $50 billion but smaller than $250 billion.

"And sure enough, we saw the consequences of that over the weekend," Warren said.

Sixteen Democrats joined Republicans to pass the Economic Growth, Regulatory Relief and Consumer Protection Act in March 2018 in a 67-31 vote. Warren voted against the legislation, as did Senate Majority Leader Chuck Schumer, who said Tuesday that the Senate will look into the causes of the banks' collapse.

"If the damage had spread across our financial system, the deposits and savings of tens of millions of families and small businesses could have been at serious risk," Schumer said speaking on the Senate floor. "[T]he American people can rest assured that bank regulators have acted quickly and are doing everything they can to protect consumers. In the days and weeks to come, Congress will look closely at what caused the run on Silicon Valley Bank and how we can prevent similar events in the future."

Barney Frank, a former congressman and former board member of Signature Bank, told NPR's Juana Summers Monday that these bank failures did not happen because of the rollback of Dodd-Frank Act but because of crypto.

Warren disagrees and said, "In both cases, it was about loading up on risk in order to boost the profits."

"It's not just Congress. It's also the Fed that stepped in."

The Fed announced a review of SVB supervision and regulation on Monday after its takeover by financial regulators led to the largest bank failure since the 2008 financial crisis.

"Look, for this inquiry to have any credibility, Chair [Jerome] Powell must recuse himself," Warren said. "When the law was weakened, it permitted the Fed to loosen those regulations. Chair Powell led the charge on that. He not only loosened the regulations, he went further than some people thought the law permitted."

"You know, this is part of the reason that I opposed him for his re-nomination to be chair of the Fed. I thought that this was a very dangerous move on his part."

For people who use smaller regional banks, Warren says they should not worry.

"The federal government has stepped in and said we're going to make sure that depositors are protected. And that means everyone should breathe a big sigh of relief over that issue. Now, we need to make changes in the law so this problem doesn't happen again."

Speaking later Tuesday on the Senate floor, Warren continued to stress that Congress and the Fed have to reimplement strict rules for financial institutions to prevent future banking catastrophes.

"The bank failures our nation experienced this weekend were entirely avoidable if Congress and the Fed had done their jobs and kept strong oversight of big banks in place," she said. "And now we must act quickly to prevent the next crisis by repealing the dangerous Trump era provisions that made banks weaker."

Federal officials are attempting to auction off some $200 billion in assets, which Silicon Valley Bank holds. Any deposit support that does not come from the insurance fund, or asset auctions, will rely on special assessments on banks, or essentially a tax that mostly larger banks will bear the brunt of, according to officials with the Federal Deposit Insurance Corp.

Republican Sen. James Lankford of Oklahoma said Tuesday that that the special assessment is a "backdoor tax increase" on all Americans since the money comes from all U.S. banks. He said that means banks in his home state and in "rural towns are about to pay a special fee to be able to bail out millionaires in San Francisco."

"Now listen, I don't want to see a contagion of banks either, but let's be honest, what's really happening is a backdoor tax increase on every single Americans, just not using the IRS to do it," Lankford said. "It's using community banks to do it all over the country, to charge them a quick higher fee, which they know will mean a higher fee to the people that are members of their banks. And that's how it's going to get covered."

There is currently no prohibition against banks recouping the assessment by charging their customers.

The digital story was edited by Heidi Glenn, Padmananda Rama and Majd Al-Waheidi. NPR Business Reporter Bobby Allyn contributed to this report.