Top lawmakers who sit on key banking committees have praised the federal takeover of First Republic Bank and the successful sale of its assets to JP Morgan Chase. The sale of the bank’s assets has been viewed as a public-private collaboration to protect the US financial system. Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, commended the prompt and cost-effective sale of the bank, which protects depositors, limits contagion, and ensures that no cost is borne to taxpayers. The Republican chairman of the committee, Rep. Patrick McHenry, also praised the quick work of regulators to facilitate the sale of the bank’s assets while minimizing risk to taxpayers.
Appetite for Banking Reform Exists Outside Congress
The Federal Deposit Insurance Corporation (FDIC) has released a new report outlining various options for deposit insurance reform. The report concluded that Congress should allow higher limits or unlimited insurance for business accounts. Republicans prefer private sector solutions over broadening government backstops. In contrast, Democrats, including Rep. 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. Waters also suggested that the House Financial Services Committee should invite the CEO of First Republic to testify.
While there is little hope in Washington that any serious banking reforms will come out of Congress this year, the collapse of First Republic has sparked a renewed debate on Capitol Hill about how best to address threats to the financial system. The collapse of First Republic followed the failures of Silicon Valley Bank and Signature Bank in March. Democrats 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. Republicans have repeatedly cautioned against passing new legislation in response to the banks’ failure and declined to push for stricter regulation again on Monday.
It is unclear 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.
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