May 04, 2023

Senator Warren Seeks Answers from Former First Republic CEO Following Bank’s Collapse

“The primary cause of the collapse of First Republic appears to be complacency, incompetency, and mismanagement by you and other bank executives.”

Text of Letter (PDF)

Washington, D.C. – U.S. Senator Elizabeth Warren (D-Mass.) sent a letter to First Republic Bank’s former CEO Michael J. Roffler, inquiring about his and First Republican executives’ mismanagement of the bank, their lobbying for weaker rules, and their compensation and stock sales. On May 1, after the bank failed, First Republic Bank was taken over by the FDIC and ultimately acquired by JP Morgan Chase.

In the months before the Senate passed the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018, First Republic Bank spent hundreds of thousands of dollars lobbying Congress in support of rolling back the regulations enacted by the Dodd-Frank Act. Just three months before its failure, the bank was still advocating for weaker regulation and supervision by the Federal Reserve.

“Following the passage of that law, your predecessor as CEO, James H. Herbert, gave over $2.1 million in campaign contributions to supporters of the law,” wrote Senator Warren. “You joined the call for deregulation of your bank on January 23, 2023, writing to the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC) in opposition to proposals to strengthen capital and resolution requirements.”

Prior to its collapse, First Republic had developed a business model based on ultra-low interest long-term loans to the wealthy in order to gain access to their savings and other accounts.  This model left First Republic unprepared to weather the Federal Reserve’s rapid interest rates increases that started in early 2022 – and the bank’s risk managers failed to identify or address these risks. Moreover, in the months leading up to the bank’s collapse, top executives began selling millions of dollars worth of company stock, totaling $11.8 million worth of stock so far this year. 

“You owe your customers and the public an explanation for the decisions that resulted in the costly failure of your bank – the second largest bank failure in the nation’s history  – the extent to which you lobbied against rules that could have prevented this failure, and the extent to which you and other bank executives profited even as the bank teetered towards collapse,” concluded Senator Warren. 

Senator Warren is asking for additional information about the gross mismanagement that resulted in the bank’s failure and the extent to which Mr. Roffler and other bank executives earned huge salaries and bonuses while leading the bank towards failure no later than May 17, 2023.

Senator Warren is a leading voice on the financial system, holding bank executives accountable for gross mismanagement and advocating for critical regulations to protect consumers, the financial system, and the economy:

    • On May 3, 2023, Senators Warren, Chair of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, and John Kennedy (R-La.), Ranking Member of the Economic Policy Subcommittee, sent a letter to Mark Bialek, the Inspector General of the Federal Reserve (Fed), inviting him to testify at their hearing next week on the Fed’s role overseeing Silicon Valley Bank (SVB) before its failure and to consider legislative reforms that strengthen transparency and accountability at the Fed.
    • On April 28, 2023, following the Fed’s report on SVB’s failure, Senator Warren released a statement calling on the Fed to immediately adopt stricter bank oversight and called out Chair Powell’s failure to supervise and regulate banks that posed a systemic risk to the economy. 
    • On April 10, 2023, Senator Warren and Representative Alexandria Ocasio-Cortez (D-N.Y.) sent a letter to 14 of the largest depositors at Silicon Valley Bank (SVB), raising questions about reports of the failed bank’s “coddling” and “white glove” treatment of its largest venture capitalist (VC) depositors, their executives, and startup firms, and those firms’ decision to hold huge, uninsured accounts at the bank.
    • On March 31, 2023, Senator Warren and Thom Tillis (R-N.C.) led a bipartisan group of senators to reintroduce the Financial Regulators Transparency Act, bipartisan legislation that would subject regional Federal Reserve Banks to the Freedom of Information Act (FOIA) and ensure their responsiveness to congressional and public information requests.
    • On March 30, 2023, Senators Warren, Richard Blumenthal (D-Conn.), and Tammy Duckworth (D-Ill.) sent a letter to Michael Barr, Vice Chair for Supervision of the Federal Reserve, Martin Gruenberg, Chairman of the Federal Deposit Insurance Corporation, and Michael Hsu, Comptroller of the Currency, urging the banking regulators to establish strong bank capital requirements to protect consumers and preserve the safety and soundness of the banking system.
    • On March 29, 2023, Senators Warren and Catherine Cortez Masto (D-Nev.), both members of the Senate Banking, Housing, and Urban Affairs Committee, Josh Hawley (R-Mo.), and Mike Braun (R-Ind.) introduced the Failed Bank Executives Clawback Act – bipartisan legislation that would require that, in the event of a bank failure, federal regulators claw back all or part of the compensation received by bank executive in the five-year period preceding the failure.
    • On March 22, 2023, Senators Warren and Rick Scott (R-Fla.) introduced bipartisan legislation to require a presidentially-appointed and Senate-confirmed Inspector General to the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection.
    • On March 22, 2023, Senator Warren led 11 senators in a letter to Fed’s Vice Chair for Supervision, Michael Barr, calling on him to exercise the Fed’s authority to apply stronger regulation and supervision to banks with assets totaling $100 to $250 billion. 
    • On March 16, 2023, Senator Warren sent a letter to Fed Chair Powell, criticizing his leadership failures at the Fed that directly contributed to the failures of SVB and Signature Bank, and the significant risk to the banking system and the economy unleashed by those collapses. 
    • On March 15, 2023, Senator Warren delivered a speech on the Senate Floor about the failures of SVB and Signature, spoke about her new legislation, the Secure Viable Banking Act, which would reverse the mistakes that Congress and President Trump made with rollbacks of Dodd-Frank
    • On March 14, 2023, Senator Warren sent a letter to ex-SVB CEO Greg Becker, asking for answers about his and SVB lobbyists’ efforts to roll back Dodd-Frank rules prior to the collapse of the bank.
    • On March 14, 2023, Senator Warren called on Chair Powell to recuse himself from the Fed’s review of the SVB failure. 
    • In December 2022, Senator Warren and then-Senator Pat Toomey (R-Pa.) introduced the bipartisan Financial Regulators Transparency Act, legislation that would strengthen Federal Reserve accountability and ensure that no financial regulator can withhold critical ethics-related information from Congress.