May 18, 2023

Warren Questions Banking Regulators’ Decisions on Sale of First Republic Bank to JPMorgan

First Republic’s Sale Cost Federal Deposit Insurance Fund $13 Billion, Made Nation’s Largest Bank, JPMorgan, Even Bigger 

Text of Letter (PDF)

Washington, D.C. – United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Banking, Housing, and Urban Affairs Committee, sent a letter to Martin Gruenberg, Chair of the Federal Deposit Investment Corporation (FDIC) and Michael Hsu, Acting Comptroller of the Currency, questioning the terms of the deal and the rationale behind the FDIC and Office of the Comptroller of the Currency’s (OCC) approval of the sale of First Republic Bank (First Republic) to JPMorgan Chase (JP Morgan). 

“The executives at First Republic – who took excessive risks and did not appropriately manage them as interest rates increased throughout 2022 and 2023 – bear primary responsibility for this failure…But the outcome of this seizure and sale were deeply troubling: it resulted in a $13 billion cost to the Federal Deposit Insurance Fund – which will ultimately be passed on to ordinary bank consumers across the country – and made JPMorgan, the nation’s biggest bank, even bigger. JPMorgan will also record a $2.6 billion gain from the deal,” wrote Senator Warren. 

Senator Warren's first set of questions concern why the Federal Deposit Insurance Fund was allowed to take a $13 billion loss while the FDIC deal made nearly $50 billion worth of uninsured depositors at First Republic whole. 

“Under the law, the FDIC is required to resolve bank failures at the least cost to the insurance fund. But that did not appear to happen here – instead, the FDIC appeared to prioritize First Republic’s uninsured deposits at the bank before the Insurance Fund, while accepting losses to the Fund. The FDIC, with the Federal Reserve and Treasury Department, can avoid taking the least-cost route and guarantee uninsured accounts if it declares a systemic risk exception because of a threat to the financial system. The FDIC used this approach to guarantee depositors for uninsured funds in the aftermath of the failures of Silicon Valley Bank and Signature Bank – but did not do so for First Republic,” wrote Senator Warren. 

Senator Warren’s next set of questions concern the decision to choose too-big-to-fail JPMorgan, already the nation’s largest bank, to acquire First Republic and become even bigger. The FDIC reportedly received multiple bids to take over First Republic, and JP Morgan's acquisition could earn it up to $1 billion annually. 

“Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, a bank holding company may not consummate a merger that would result in the bank holding more than 10% of the nation’s total deposits – a standard that JPMorgan already exceeds. However, because Riegle-Neal includes an exception for failed banks, the OCC has indicated that it did not need to take any action because the statute automatically provides a waiver,” continued Senator Warren. 

“The net result of these machinations is that, without a complete regulatory review, and at a cost of $13 billion to the Federal Deposit Insurance Fund, the nation’s biggest bank – already too big to fail – got a bargain deal on a failing bank that made it even bigger. This is a troubling outcome, leaving me with numerous questions,” concluded Senator Warren. 

Given her concerns, Senator Warren is asking the FDIC and OCC to answer a set of questions by May 31, 2023 and come prepared to answer her question at a Senate Banking, Housing, and Urban Affairs Committee hearing on May 18, 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 16, 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren blasted the former CEOs of Silicon Valley Bank (SVB) and Signature Bank (Signature) for lobbying Congress to weaken banking regulations, loading up their banks with risk, ignoring regulators’ warnings, and crashing their banks – all while keeping their multi-million dollar paychecks. 
  • On May 4, 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the importance of passing strong legislation to provide the FDIC with the necessary authority to claw back executive pay whenever banks collapse, regardless of the specific process the FDIC uses to pick up the pieces.
  • On May 4, 2023, Senator Warren sent a letter to First Republic Bank’s former CEO Michael J. Roffler, seeking answers about his and First Republic executives’ mismanagement of the bank, their lobbying for weaker rules, and their compensation and stock sales. 
  • On May 3, 2023, Senators Warren and John Kennedy (R-La.) 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 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 SVB, raising questions about reports of the failed bank’s “coddling” and “white glove” treatment of its largest venture capital 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 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.