WASHINGTON — President Biden on Thursday called on financial regulators to toughen oversight of medium-sized banks that face reduced scrutiny in the wake of a regulatory rollback implemented during the Trump administration, his most aggressive response yet to the failure of two banks earlier this month that rattled the nation’s financial system.
Mr. Biden’s proposals would not require any action from Congress and could be accomplished by regulators, administration officials said. They include steps to require banks to protect themselves against potential losses and maintain enough access to cash to carry them through a crisis.
The proposals would also subject more banks to annual stress tests conducted by regulators to ensure they could survive events like the Federal Reserve rapidly raising interest rates — a catalyst in the failure of Silicon Valley Bank earlier this month. They would broadly increase regulation on banks with between $100 billion and $250 billion in assets, like Silicon Valley Bank.
Many of those measures could have helped regulators in the administration and at the Federal Reserve spot — and act to head off — problems earlier at Silicon Valley Bank, which saw losses mount quickly on its balance sheet as interest rates rose over the last year. The bank was heavily invested in government bonds, and when rates went up, the value of those bonds fell, eventually spurring the largest depositor flight in American history.
That rapid chain of events culminated in the bank’s failure and an emergency government effort to rescue depositors at the bank and similarly sized Signature Bank.
Mr. Biden also called on regulators, including the Federal Reserve, to increase supervision on banks with between $100 billion and $250 billion in assets. He specifically asked the Federal Deposit Insurance Corporation to exempt community banks from new fees meant to cover the costs of the recent depositor rescues, a move an administration official said reflected the importance of the community banking system to the U.S. economy.
White House officials characterized the proposals as requests for independent agencies — not a presidential directive — and said they were made in consultation with the regulators involved. In a briefing on Thursday, an official referred reporters to regulatory agencies on the question of whether and when the regulatory changes might be implemented.
The request seeks to reinstall some of the requirements that were included in the 2010 Dodd Frank law that President Barack Obama signed in the wake of the 2008 financial crisis. Nearly a decade later, Mr. Trump signed into law a bipartisan bill that gave regulators the ability to loosen some of that oversight for small and midsize banks. Mr. Biden and his aides have blamed that watering down of the rules for the recent crisis.
“Unfortunately, Trump Administration regulators weakened many important common-sense requirements and supervision for large regional banks like Silicon Valley Bank and Signature Bank, whose recent failure led to contagion,” administration officials wrote in a fact sheet released to reporters on Thursday.
Thursday’s announcement was the president’s second batch of requests to strengthen financial regulation in the wake of the banks’ collapse, but by far the most sweeping.
Soon after his administration and the Fed acted to guarantee depositors’ access to all their funds and provide attractive loans to other banks to firm up confidence in the banking system, Mr. Biden called on Congress to pass a trio of measures meant to allow regulators to crack down on executives at failed banks of a similar size as Silicon Valley Bank.
Those proposals included giving regulators additional ability to fine executives from banks that fail, to claw back compensation those executives received in the run-up to the failures and to bar such executives from working elsewhere in the financial system.
At a hearing this week with top regulators from the administration and the Fed, Senator Sherrod Brown, Democrat of Ohio and chairman of the Banking Committee, said he would be introducing legislation along similar lines, seeking to enhance regulators’ ability to target executives of failed banks.
Those plans face a murky future in Congress, where Republicans control the House and have signaled little appetite to increase bank regulation in response to the recent crisis. In recent weeks, Republican lawmakers have sought to blame the banks’ failure on distracted executives and on insufficiently stringent supervision by bank examiners at the Federal Reserve.
Mr. Biden hinted earlier this week that he was considering additional requests to strengthen bank oversight, while reassuring reporters that the financial system had safely weathered the disruptions of earlier this month.
“It’s pretty much under control now,” Mr. Biden said Tuesday. “It remains to be seen, but we’re looking to see whether it needs any further legislation.”
Other top economic officials in the administration have also said in recent days that Congress would likely need to strengthen financial regulations in response to the crisis.
“I absolutely think that it’s appropriate to conduct a very thorough review of what factors were responsible for the failure of these banks,” Janet L. Yellen, the Treasury secretary, told a Senate committee last week. “Certainly we should be reconsidering what we need to shore up regulation to prevent this.”
Mr. Biden has kept a mostly low profile on the issue after giving brief remarks the day after his administration and the Fed announced the depositor rescue. He has highlighted his administration’s efforts to invest in manufacturing and infrastructure in public events and allowed Ms. Yellen and others to carry much of the administration’s message of reassurance to investors and consumers.
In an interview on Thursday, the outgoing chair of Mr. Biden’s Council of Economic Advisers, Cecilia Rouse, said the financial system “is stabilizing” after being shaken by Silicon Valley Bank.
“I think there’s clearly a lot of understanding of what happened” to the failed banks and how lawmakers can and should improve financial regulations, Dr. Rouse said. “We have a lot more tools than we did before the 2008 financial crisis,” she added. “I don’t think we’re done yet. But it’s no question that we’re seeing that the situation has made huge improvements from where it was a week or two ago.”