Lawmakers praise First Republic sale, but efforts to pass new bank rules are fizzling
Chairman Sherrod Brown, D-Ohio, left, and ranking member Sen. Tim Scott, R-S.C., arrive for the Senate Banking, Housing and Urban Affairs Committee hearing discussing recent bank failures, April 27, 2023.
Tom Williams | Cq-roll Call, Inc. | Getty Images
WASHINGTON — Lawmakers who sit atop key banking committees praised the federal takeover of First Republic Bank on Monday, and held up the sale of its assets to JP Morgan Chase as a successful public-private collaboration to protect the U.S. financial system.
“This prompt and cost-effective sale of the bank protects depositors, limits contagion and ensures that no cost is borne to our nation’s taxpayers,” said Rep. Maxine Waters of California, the top Democrat on the House Financial Services Committee.
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The Republican chairman of the committee, Rep. Patrick McHenry, of North Carolina, said, “I appreciate the quick work of regulators to facilitate a sale of the bank’s assets while minimizing risk to taxpayers.”
The collapse of the institution, which followed the failures of Silicon Valley Bank and Signature Bank in March, sparked a fresh debate on Capitol Hill about how best to address threats to the financial system.
GOP lawmakers have repeatedly cautioned against passing new legislation in response to the banks’ failure, and they declined to push for stricter regulation again on Monday.
Democrats, meanwhile, have focused on a 2017 bank deregulation bill that passed with bipartisan support at the time, making it unlikely that a repeal effort would succeed today.
More broadly, with control of the House and Senate split and negotiations over the debt ceiling poised to dominate the next several months, there is little hope in Washington that any serious banking reforms will come out of Congress this year.
Even so, an appetite for banking reform exists outside Congress.
The Federal Deposit Insurance Corporation, which has backstopped tens of billions of dollars worth of uninsured deposits at the failed banks, released a new report Monday outlining various options for deposit insurance reform. The report concluded that Congress should allow higher limits or unlimited insurance for business accounts.
Republicans have indicated so far that they strongly prefer private sector solutions over broadening government backstops.
On the Senate side, the ranking member of the chamber’s banking committee, Sen. Tim Scott, R-S.C., said he was “glad” the FDIC had “secured a private market solution for First Republic. I look forward to learning more about the bid process and bringing transparency to the American people.”
His statement contrasted from the reaction of the Senate banking committee’s chairman, Democratic Sen. Sherrod Brown of Ohio. He did not directly respond to the federal intervention, choosing instead to direct his ire at the failed bank.
“First Republic Bank’s risky behavior, unique business model, and management failures led to significant problems, and it’s clear we need stronger guardrails in place,” Brown said in a statement. “We must make large banks more resilient against failure so that we protect financial stability and ensure competition in the long run.”
Like Brown, Waters called for a more robust congressional response to the failure of three major regional banks since the beginning of March: first SVB, then Signature Bank and, most recently, First Republic.
Friday’s government reports reviewing the federal responses to SVB and Signature “underscore the need for Congress and regulators to strengthen the regulation and supervision of regional banks,” said Waters, and for “compensation clawbacks to hold bank executives accountable for their actions.”
Waters also said the House Financial Services Committee should invite the CEO of First Republic to testify. A previous invitation from the Senate banking committee to the CEOs of SVB and Signature Bank in March was declined, according to follow-up letters the committee sent to the chief executives.
Still, it was unclear Monday whether the slow-motion collapse of First Republic over several weeks, which culminated in the sale announcement, would be enough to revive interest on Capitol Hill in legislation to increase the regulation of banks or impose stricter penalties on bank executives at failed banks.
Following a flurry of new bills in the weeks after the collapse of SVB, Congress has yet to take any concrete action in response to the bank failures, save for holding hearings with regulators.
A bipartisan Senate bill introduced in late March would give federal regulators far more power to claw back executive compensation at failed banks than they have under current law.
The bill has been referred to the banking committee, which has yet to take up any specific legislation in response to the bank failures.
The Failed Bank Executives Clawback Act was just one of several pieces of legislation championed by Sen. Elizabeth Warren, a longtime skeptic of big banks.
In a statement Monday, the Massachusetts Democrat said the failure of First Republic “shows how deregulation has made the too big to fail problem even worse.”
She added, “a poorly supervised bank was snapped up by an even bigger bank—ultimately taxpayers will be on the hook. Congress needs to make major reforms to fix a broken banking system.”