The Research Brief is a short take about interesting academic work.

The big idea

Despite the heightened poverty and unemployment seen when the COVID-19 pandemic got underway, many low-income U.S. children did not experience a decline in their emotional and mental health, we found in a new study.

We looked specifically at kids whose families were participating in the Supplemental Nutrition Assistance Program – commonly known as SNAP – the government program that helps low-income Americans afford food.

The government began to boost SNAP benefits in early 2020 to help offset pandemic-driven food insecurity for participating families, which now number around 41 million.

As a result, families got an extra US$95 or more per month for groceries to replace the meals children were missing at schools that had closed. Some eligibility rules were loosened to expand the program’s reach, and for the first time, people could buy groceries online with their SNAP benefits.

To learn whether these extra benefits affected children’s mental and emotional health, we analyzed five years of data collected by the National Survey of Children’s Health on 30,748 low-income families with children aged 6 to 17 years. The data, which included both families who were and were not getting SNAP benefits, covered the four years prior to the pandemic, as well as 2020.

Among the 8,680 families getting SNAP benefits during this period, 38% had at least one child with problems such as doctor-diagnosed mental, emotional, developmental or behavioral health issues – including anxiety and depression.

To assess whether the temporarily expanded benefits had an impact on these children, we conducted a “difference in differences” analysis: We compared data regarding children whose families enrolled in the SNAP program over time with children whose families didn’t get those benefits. In addition, we considered the potential influence of several factors that could play a role, such as parents’ mental health.

We found that children in families getting SNAP benefits in 2020 did not generally experience any change in their mental or emotional health compared to prior years, despite the heavy stress of the pandemic.

Why it matters

Typically, low-income children are more at risk of developing mental health or emotional problems, compared with high-income children. Our study adds to earlier evidence that SNAP benefits can lower that risk by reducing psychological distress and improving food security.

While 2020’s extra SNAP benefits protected children’s mental and emotional health, they did not improve it. This suggests that actually reducing food insecurity for low-income families would have required additional steps.

In March 2023, the federal government ended the pandemic-era SNAP expansions in 35 states and territories that hadn’t yet rolled them back. With inflation driving the cost of groceries up 11.4% in 2022, we believe that losing these benefits threatens the well-being of millions of families.

What’s next

We are now studying the effects of pandemic-related changes to the Special Supplemental Nutrition Program for Women, Infants and Children, better known as WIC.

We are looking at, for example, how expanding WIC benefits to cover canned, frozen and dried fruits and vegetables in addition to fresh produce has affected the low-income families’ purchasing behavior. Our team for this research also includes public health and nutrition scholars Alexandra MacMillan Uribe and Elizabeth Racine,

What is not known

When we did our study, data from the years after 2020 wasn’t yet available, so we couldn’t investigate the potential impact of subsequent pandemic-related changes to SNAP benefits. Notably, in 2021, the federal government increased maximum benefit levels by 15% and extended the extra $95 or more in monthly food assistance for the lowest-income households.

Grace Melo, ACES Faculty Fellow, Texas A&M University; Pourya Valizadeh, Research Assistant Professor of Agricultural Economics, Texas A&M University, and Rodolfo M. Nayga Jr., Professor of Agricultural Economics, Texas A&M University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

When Silicon Valley and Signature banks failed in early March 2023, government regulators rushed in to guarantee deposits and protect bank customers. Under current banking regulations, though, there was no obligation for the government to step in.

Now, both Democratic and Republican politicians are making pronouncements about whether bipartisan-backed deregulation in 2018 led to the banks’ collapse and whether the banking industry needs more government intervention.

Sen. Elizabeth Warren of Massachusetts and U.S. Rep. Katie Porter of California, both Democrats, introduced a bill on March 15, 2023, to restore stiff banking regulations that they maintain would have prevented the practices that led to the recent bank collapses. But some Republicans, including U.S. Rep. Andy Barr of Kentucky, say lax government policy that included overspending – which Barr says, fueled inflation, as well as long-term low interest rates – not deregulation, was behind the banks’ failures.

In dispute are requirements in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that were rolled back in 2018. Dodd-Frank put in place financial regulatory changes in response to the 2008 global financial meltdown. The legislation included among its requirements one that banks with US$50 billion in assets be subject to strict standards. Some lawmakers, including Porter and Warren, say those requirements should have remained intact.

But the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 loosened the standards, raising the asset threshold to $250 billion, meaning fewer banks were under strict controls.

The Conversation asked Gerard W. Comizio, a law professor, former Wall Street attorney and former senior Treasury Department official, to explain some of the problems that spurred Silicon Valley Bank, Signature Bank and another bank to fail.

What caused Silicon Valley, Signature and a third bank, Silvergate, to fail?

Significant withdrawals at all three banks caused cash crises that could not be addressed by selling assets, such as bank notes and bonds. In the case of all three banks, sales of their assets would have triggered significant additional losses, since their portfolios were worth less than they paid for them and interest rates were rising.

While some aspects of each failure were different, there were common elements, and a certain level of Murphy’s law – the idea that if something can go wrong, it will. In the case of these banks, everything went wrong.

In the last three months of 2022, Silvergate had a record $1 billion loss, due to heavy lending to troubled and failed crypto trading exchanges. And its interest rate-sensitive securities portfolio became kindling for the current crisis.

During 2022, Silvergate’s deposit base grew dramatically, almost doubling its assets to $210 billion. But the bank did not have either the administrative capacity or market demand to lend out all of the money, as banks normally do. So, it invested the excess deposits in Treasury bonds and mortgage investment products.

But the bond purchases became a problem as the Federal Reserve began to raise interest rates to address inflation. As Business Insider reported, a two-year U.S. Treasury note that offered nearly triple the amount of Silicon Valley Bank’s portfolio of long-term bonds – which generated income at an average of just 1.6% – was much more attractive.

Bond prices plunged, creating billions of dollars in paper losses for Silicon Valley Bank, popularly known as SVB.

To shore up its cash assets, in the face of increasing customer withdrawals, SVB sold $21 billion in bonds at a $1.8 billion loss.

Which regulations from the 2010 Dodd-Frank Act were designed to prevent banking failures?

Section 165 of the Dodd-Frank Act adopted so-called “enhanced prudential regulation” rules for all banking organizations with more than $50 billion in assets, designating them as “systemically important financial institutions,” popularly known by the term “too big to fail.” These standards were designed to be more stringent than those applied to smaller banks. Lawmakers believed the larger institutions posed far greater risk to the financial stability of the U.S.

These stricter rules required, among other things, that the banks deemed too big to fail periodically update for the Federal Reserve and the Federal Deposit Insurance Corp. a comprehensive resolution plan. Dubbed the Living Will, that plan details a company’s plans for a “rapid and orderly” dissolution of the bank in the event it is failing or has already failed. In addition, these too-big-to-fail banks had a requirement to periodically assess their risk under a variety of market conditions, including rises in interest rates and risk hedging strategies. The rules also said designated banks had significantly higher capital requirements.

No longer required to adhere to those key provisions of the Dodd-Frank Act, the failed banks did not. Arguably, the provisions could have saved them.

Why weren’t the banks subject to those regulations?

Industry leaders, among them Greg Becker, CEO of Silicon Valley Bank, lobbied Congress in 2015 to roll back some of the Dodd-Frank Act provisions.

Arguing that the $50 billion threshold needed to be raised, Becker said the restrictions on midsize banks under the Dodd-Frank Act were too burdensome and inhibited banks’ ability to “provide the banking services our clients need.”

In 2018, Congress, in a bipartisan vote, with the support of then-President Donald Trump’s administration, all of the federal banking agencies and the banking industry, passed the Economic Growth, Regulatory Relief and Consumer Protection Act. It amended the Dodd-Frank Act to substantially reduce the number of banks subject to the more stringent regulation by raising the threshold at which banks posed potential systemic risk, from $50 billion up to $250 billion.

On July 6, 2018, all of the banking agencies issued a statement confirming the elimination of these requirements.

If the Dodd-Frank Act had remained intact, would the banks have failed?

There are a number of arguments as to whether these failures could have been prevented and addressed faster if the Dodd-Frank standards had still been in place. These standards were arguably designed to specifically prevent and address the type of circumstances that triggered these recent bank failures: multiple failures and contagion in the financial system, market panic, deposit runs and liquidity crisis.

For example, abiding by Living Wills and stress testing would have identified problems far earlier and potentially required these banks to address a number of potential red flags that constituted higher risk, such as:

• Interest rate risk in the banks’ securities portfolio investments, and the consequences of liquidating those investments at a significant loss in the event of a cash crisis;

• Lack of interest rate risk hedging strategies;

• Excessive uninsured deposits that posed a risk to the bank if customers withdrew their money en masse; and

• The need to hold higher-than-normal levels of money to address their risks.

Ironically, in taking steps to provide unprecedented deposit insurance coverage to uninsured deposits at these banks, the U.S. Treasury, the Fed and the FDIC issued a joint statement on March 12 that they were invoking the systemic risk exception which allowed them to replace depositors’ money, even though the law was changed in 2018 to make clear banks of their size no longer posed systemic risk.

V. Gerard (Jerry) Comizio, Professor of Law, American University

This article is republished from The Conversation under a Creative Commons license. Read the original article.