Banks, Trains and Political Finger-Pointing

The quiet from Republicans on Capitol Hill after two bank implosions has been understandable, given their near unanimity behind the 2018 legislation lifting regulations on all but the largest banks. But the people jostling for the party’s presidential nomination as well as the pundits in conservative media have been anything but silent.

“Woke,” said Ron DeSantis, the governor of Florida. “A bad sign. That could be the beginning,” former President Donald J. Trump warned on Monday evening in Davenport, Iowa, taking an apocalyptic tone. “Bailout,” said Nikki Haley, the former United Nations ambassador, raising the specter of the 2008 financial crisis that ushered in the Tea Party movement that upended the Republican Party.

For the second time in two months, news events have revealed how the responses of the two major political parties distinguish their leaders, and how conservative media serves as an echo chamber even for the most improbable arguments.

The collapses of Silicon Valley Bank and Signature Bank were greeted in much the same fashion as the derailment of a Norfolk Southern train in East Palestine, Ohio. Again, Democrats found a culprit in the Trump administration’s zeal for deregulation. Again, Republicans played into grievances.

The Republican fallback to blaming diversity, equity and inclusion policies is telling. They could have made a more logical economic argument that inflation fueled in part by Democratic policies decreased the value of what should have been safe assets — U.S. Treasury bonds — and forced Silicon Valley Bank to sell investments at a loss, setting off a bank run.

Instead, conservatives — including Mr. DeSantis; Representative James Comer of Kentucky, the chairman of the House Oversight Committee; Tucker Carlson of Fox News; and even a Wall Street Journal opinion writer — blamed “woke” diversity requirements that appear to have nothing to do with the implosions but speak to the G.O.P. base.

“The F.D.I.C. will bail out Silicon Valley billionaires, forcing community bankers in Kansas to pay for the abysmal failures of a woke California bank,” Senator Roger Marshall, Republican of Kansas, wrote on Twitter.

Especially in right-wing media, a regulatory, business and financial issue has been recast as another front in America’s culture wars, which have come to define this year’s Republican agenda.

Silicon Valley Bank was “heavily into equity and Pride days around the world,” Brian Kilmeade, a co-host on the Fox News morning show “Fox & Friends,” said Monday. “Where’s your focus on regulation and risk?”

“Silicon Valley Bank is a woke Biden bank,” Jesse Watters, host of “Jesse Watters Primetime” on Fox News, said on Monday. “They were holding seminars on Lesbian Visibility Day and National Pride Month.”

The political potency of the moment is palpable. The federal government has moved with blinding speed to save the deposits in one bank whose main business was to promote risky and high-flying technology companies, and another, Signature, whose board included a liberal former House Democrat, Barney Frank, an author of the 2010 legislation that regulated banking after the 2008 financial crisis, a law that bears his name.

Representative Ro Khanna, a liberal Democrat from California, acknowledged that voters would compare that rapid action to what they might see as a plodding federal response to the water crisis in Jackson, Miss., the toxic plume released over East Palestine or the debt burdens facing college graduates and the sick.

“Their complaint isn’t as much about decisions that were made as the legitimate frustration that government seems incapable of decisive action when working families are involved from nonprominent places,” he said in an interview.

Ms. Haley, who along with Mr. Trump is one of two declared major candidates for the Republican presidential nomination, hit on that theme on Monday at a rally in Myrtle Beach, S.C.

“And now they want to bail out a bank?” she asked incredulously. “If one of our small businesses went into bankruptcy, do you think they’d bail it out? They wouldn’t.”

The argument that federal demands on banks to have diverse leaders played a role in the collapse appears specious. Representative Maxine Waters of California, a top Democrat on the House Financial Services Committee, did include a diversity and equity provision in the expansive Wall Street regulation law that passed in 2010, to encourage more hiring and promotion of women and workers of color by financial institutions. But Silicon Valley Bank’s leadership was not particularly diverse.

Like many banks, S.V.B. had expressed an interest in sustainable investing and diversity. The bank planned to devote a small portion of its funds — at least $5 billion by 2027 — to sustainable businesses. (It had $212 billion in assets and held $74 billion in loans in December 2022.) The bank had also adopted hiring policies that promoted diversity.

But a more prosaic issue was at the center of its collapse: Silicon Valley Bank focused too much of its business in one sector, technology, and parked too much cash in long-term Treasury bonds, whose low interest rates then failed to keep up with an unanticipated rise in inflation. When worried depositors demanded their money, the bank had to sell holdings at a loss, which fueled a panic.

“S.V.B. failed — while its chief risk officer position sat vacant for eight months as its financial standing deteriorated — because it failed to address two key risks: concentration in your client base, and rising interest rates. This is a failure of ‘Banking 101,’” Senator Elizabeth Warren, Democrat of Massachusetts, wrote on Tuesday in a scathing letter to Greg Becker, the president of the bank until it collapsed.

Indeed, one of the first depositors to sound the alarm was Founders Fund, owned by the Republican megadonor Peter Thiel. The fund withdrew its money last Thursday and told its portfolio companies to switch banks, according to Bloomberg. The bank failed the next day.

The fact that Mr. Thiel has given millions of dollars to the conservative political action committee Club for Growth did not dissuade the group from sharply criticizing the Biden administration’s rescue efforts. And the organization failed to explain how Mr. Thiel fit into its critique of the bank’s “woke” investments and “liberal” clients.

“Taxpayers should not be forced to bail out the well-connected and wealthy because a bank prioritized woke causes above smart investing,” said David McIntosh, the organization’s president. “Changing the rules after the crash to prop up liberal investors at the expense of taxpayers is pure crony capitalism.”

Nor did Mr. Thiel’s role prevent one of his former venture capital employees, Senator J.D. Vance, Republican of Ohio, from joining in: “I bet they would not bail out the small, midsized bank in Middletown, Ohio. I guarantee that they’re not going to bail out some of these farmers and local credit unions if they suffer financial problems,” Mr. Vance said on a conservative broadcast on Tuesday.

Some Democrats pointed instead to the Economic Growth, Regulatory Relief and Consumer Protection Act, which Mr. Trump signed in 2018 to loosen rules on capital cushions, stress testing and prudential standards on small to medium-sized banks with up to $250 billion in assets. Those regulations were imposed in 2010 by the banking regulatory law known as Dodd-Frank, after Senator Christopher Dodd, Democrat of Connecticut, and Mr. Frank, the former Democratic congressman from Massachusetts.

“This is all about the Dodd-Frank disaster, and they’ve fixed it, or at least gone a long way toward fixing it,” Mr. Trump said as he signed the law.

Ms. Warren, in her letter to Mr. Becker, wrote that Dodd-Frank rules undone by the law he had lobbied for would have required the bank “to maintain stronger liquidity and capital requirements and conduct regular stress tests,” which in turn would have forced Silicon Valley Bank “to shore up its business to weather the type of stress it experienced last week.”

Banking experts say the argument is sound, though the 2018 law left Fed regulators the discretion to examine banks with $100 billion in assets annually, discretion that the San Francisco Fed did not use with Silicon Valley Bank.

But the political potency is muted by the bipartisan nature of the law; 33 House Democrats and 17 senators who caucus with Democrats voted for it, including two of the most vulnerable senators in 2024, Joe Manchin III of West Virginia and Jon Tester of Montana.

Representative Nancy Mace, Republican of South Carolina, said both parties had been politicizing the issue when there is enough blame to go around.

“It’s clear the economy, rising interest rates and poor management caused this situation,” she said in an interview, pushing back on the “woke” narrative. “This is a serious issue, and members of Congress ought to be thoughtful about how our public comments can influence market conditions.”

For their part, liberal Democrats drove home the deregulatory argument, not despite the Democratic votes for the Trump-backed legislation but because of them. The first lawmaker to face scrutiny for her yes vote was Senator Kyrsten Sinema, an independent from Arizona who was a House Democrat in 2018. And the attack on her is coming from Representative Ruben Gallego, the Democrat hoping to replace her in the Senate next year.

Ms. Sinema praised the federal response to the bank collapses, and said in a statement, “the federal government must now ensure those responsible are held accountable.”

Mr. Gallego focused on her.

“When bank lobbyists asked me to weaken regulations, I said no,” Mr. Gallego said. “When they asked Senator Sinema, she asked how much.”