Chairman Sherrod Brown, D-Ohio, left, and rating 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.
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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 guard the U.S. economic 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 highest Democrat on the House Financial Services Committee.
The Republican chairman of the committee, Rep. Patrick McHenry, of North Carolina, said, “I appreciate the fast 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 handle threats to the economic system.
GOP lawmakers have repeatedly cautioned against passing latest laws in response to the banks’ failure, they usually declined to push for stricter regulation again on Monday.
Democrats, meanwhile, have focused on a 2017 bank deregulation bill that passed with bipartisan support on 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 subsequent several months, there’s little hope in Washington that any serious banking reforms will come out of Congress this yr.
Even so, an appetite for banking reform exists outside Congress.
The Federal Deposit Insurance Corporation, which has backstopped tens of billions of dollars price of uninsured deposits on the failed banks, released a latest 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 thus far that they strongly prefer private sector solutions over broadening government backstops.
On the Senate side, the rating member of the chamber’s banking committee, Sen. Tim Scott, R-S.C., said he was “glad” the FDIC had “secured a personal market solution for First Republic. I sit up for learning more in regards to the bid process and bringing transparency to the American people.”
His statement contrasted from the response of the Senate banking committee’s chairman, Democratic Sen. Sherrod Brown of Ohio. He did in a roundabout way reply to the federal intervention, selecting as a substitute to direct his ire on the failed bank.
“First Republic Bank’s dangerous behavior, unique business model, and management failures led to significant problems, and it’s clear we’d like stronger guardrails in place,” Brown said in an announcement. “We must make large banks more resilient against failure in order that we protect financial stability and ensure competition in the long term.”
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Like Brown, Waters called for a more robust congressional response to the failure of three major regional banks because the starting 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 necessity for Congress and regulators to strengthen the regulation and supervision of regional banks,” said Waters, and for “compensation clawbacks to carry bank executives accountable for his or her 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, in keeping with 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 within the sale announcement, could be enough to revive interest on Capitol Hill in laws to extend the regulation of banks or impose stricter penalties on bank executives at failed banks.
Following a flurry of latest bills within the weeks after the collapse of SVB, Congress has yet to take any concrete motion in response to the bank failures, save for holding hearings with regulators.
A bipartisan Senate bill introduced in late March would give federal regulators way more power to claw back executive compensation at failed banks than they’ve under current law.
The bill has been referred to the banking committee, which has yet to take up any specific laws in response to the bank failures.
The Failed Bank Executives Clawback Act was just one in all several pieces of laws championed by Sen. Elizabeth Warren, a longtime skeptic of huge banks.
In an announcement 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 excellent greater bank—ultimately taxpayers might be on the hook. Congress must make major reforms to repair a broken banking system.”