The second bank to fail this month was New York-based Signature Bank, shuttered by regulators over the weekend. Signature Bank is a regional bank most notable because it had a famous former congressman as one of its directors:
Barney Frank
.
Frank, a Democrat from
Massachusetts
, was not just any member of Congress. He was a moral leader of the Democratic Party and a longtime chairman of the House Financial Services Committee. He was also the co-author of one of the most consequential pieces of legislation over the last 20 years, the
Dodd-Frank
financial regulation bill of 2010.
DID SILICON VALLEY BANK PRIORITIZE SOCIAL JUSTICE OVER RISK MANAGEMENT?
Frank was a skilled debater who often deftly exposed Republican hypocrisy and inconsistency. He also promulgated some bons mots that became Democratic Party slogans. One revealing Frankism was “Government is the word for the things we do together.” A common conservative retort was, “Community is the word for the things we do together.” Government is the word for things bureaucrats do to us.
And Frank just had government get done to him.
Barney Frank says that Signature Bank was not insolvent and that a regulatory takeover was not justified by the fundamentals, but that banking authorities wanted to send an “anti-crypto message.”
That is…a pretty explosive allegation.
— Alex F. Baldwin (@VerumVulnero1) March 14, 2023
I don’t know who’s right. Maybe the Federal Deposit Insurance Corporation had to shutter Signature Bank to stop bank-run contagion and prevent another financial crisis. Maybe the FDIC had bad motives in shuttering Signature, as Frank alleges. Maybe the FDIC was simply overreacting.
But I do know that if we should feel bad for any bankers who lose their jobs thanks to regulators, Frank deserves to be last on the sympathy list.
Frank had his job at a bank thanks to Dodd-Frank. If not for the flotilla of regulations he created, he may never have been hired.
During the debate over Frank’s bill, Signature Bank Chairman Scott Shay said, “What I think bothers businesspeople is they feel like they have a multitude of new regulations to comply with, and now they have to hire compliance experts and lawyers and other cost-generating personnel rather than revenue-generating workers.”
Sure enough, as Dodd-Frank was implemented, Shay brought Frank onto the board. Signature, when it hired Frank, pointed out his regulatory expertise: “With a 32-year career devoted to government and his distinguished expertise in financial services, we believe Barney will be an asset to the board.”
Signature also bragged about Frank’s role in the bailouts, calling him “instrumental in crafting the short-term $550 billion rescue plan in response to the nation’s financial crisis.”
I
wrote
at the time: “Laws that force companies to deal more with government encourage them to hire up the meddling politicians and regulators when they choose to enter the private sector. Republican former congressman Michael Oxley, of Sarbanes-Oxley fame, became a lobbyist for FINRA, a Wall Street industry group. Republican former Rep. Richard Baker was the first congressman to propose federal regulation of hedge funds — he later became the first congressman to head the Managed Funds Association.”
The good news here is that Frank’s influence and connections did not, apparently, translate into favorable treatment of Signature Bank. Maybe that will send a message that could be contagious: Hiring politicians won’t win you preferential treatment.
