Pro-Trump posts ignore bank failures under his administration

"Don’t let the democrats lie to you… Banks were NOT failing under Donald Trump’s watch," says a March 14, 2023 tweet.

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Screenshot of a tweet taken March 16, 2023

The claim circulated elsewhere on Twitter amid a flurry of partisan accusations that followed the collapse of SVB on March 10, and New York-based Signature Bank two days later.

"I don't remember banks collapsing under Trump... but don't worry guys it's only a matter of time till Biden/media blames him for that too," Donald Trump Jr said in a March 12 tweet.

SVB's failure was primarily due to interest rate hikes that left it badly placed after investing heavily in bonds during the pandemic. The hole in the company's balance sheet precipitated a run on the bank by its customers. Biden aimed to limit the fallout by assuring depositors that the banking system was sound, and the Federal Reserve took steps to try and stem a larger economic crisis.

The collapse of SVB is second only to Washington Mutual's failure in 2008, one of the catalysts of the subsequent financial crisis that ended one-time titans such as Lehman Brothers. Beyond that, the Federal Deposit Insurance Corporation (FDIC) did report 16 bank failures during the Trump administration, contrary to the claims shared online.

"The total asset size of the 16 banks that failed during the Trump Administration (2017-2020) was relatively small, totalling $7.2 billion," said Mark Williams, a professor of finance at Boston University's Questrom School of Business.

"The failure of SVB, the sixteenth largest US bank with $211.8 billion in assets, was triggered by a bank run, resulting in the second largest collapse in US history."

By comparison, the largest bank that closed during Trump's presidency, Seaway Bank and Trust Company, had $361.2 million in assets when it failed in 2017.

Presidents, banking policy

As some Republicans sought to blame Biden for the collapse of SVB, Democrats drew attention to Trump’s rollback of the Dodd-Frank Act, a bill that tightened banking regulations after the 2008 financial crisis.

Those competing claims have to be measured against fundamental mistakes made by bank executives, experts told AFP.

"The rollback of the Dodd-Frank Act reduced the amount of regulatory oversight of banks such as SVB, but the main contributing factor for its failure was excessive risk-taking combined with weak internal asset-liability risk management," Williams said, noting that the California bank accepted $159 billion outside the FDIC insurance limit and failed to manage its asset exposure when interest rates were climbing.

"The size and speed of the SVB collapse, including concern over the transmission of systemic risk (contagion) to the broader financial industry, has sparked a movement by the Biden administration to tighten regulation to reduce banks from engaging in excessively risky behavior," Williams said.

Greg Feldberg, director of research at the Yale School of Management, said assessing to what extent looser regulations contributed to SVB's collapse is a difficult task.

"It's hard to know whether that matters, but it does mean that the dialogue between the supervisors and risk managers was less intensive around planning for their own failure than it would have been if it was a bigger company," he said.

And some experts told AFP it is inaccurate to assign responsibility for SVB’s downfall to Trump or Biden.

Feldberg said blame "should go to the management of the bank." Matthew Faulkner, an assistant professor in the Department of Accounting and Finance at San Jose State University, agreed.

"I'd find it hard to give credit solely to a president, good or bad, on bank failures," he said. "I'd blame SVB, as the operators of their bank, for their failure."

AFP has fact-checked other misinformation about SVB's collapse here.