JPMorgan just got a lot bigger — and Elizabeth Warren is alarmed

CNN

By Matt Egan, CNN

JPMorgan Chase has once again come to the rescue of the banking system by acquiring a doomed bank. And that makes Democratic Sen. Elizabeth Warren very worried.

By blessing JPMorgan’s takeover of First Republic Bank, Warren fears federal regulators just made the” Too Big to Fail” problem even worse.

“What happened here is because a bank was under-regulated and started to fail, the federal government has helped JPMorgan Chase get even bigger,” Warren told CNN on Tuesday in her first on-camera interview about the First Republic failure.

JPMorgan agreed to pay the Federal Deposit Insurance Corporation $10.6 billion to buy most of First Republic after regulators shut the large regional bank. In a relief to investors and bank customers, the JPMorgan deal protects all of First Republic’s depositors.

“It may look good today while everything’s flying high, but ultimately if one of those giant banks, JPMorgan Chase, starts to stumble, the American taxpayers are the ones who will be on the line,” Warren said.

Asked if the decision to let JPMorgan get even bigger gives her pause about how Biden-appointed regulators have handled the crisis, Warren argued a different bank should have been allowed to buy First Republic.

“There were multiple bidders here and every other bidder was a lot smaller than JPMorgan Chase. My view on this is it’s important to look at the effect on competition and to try to keep a more diversified banking system,” Warren said. “Let somebody else buy this bank. Let somebody else take over those assets.”

‘This is how the system works’

Of course, JPMorgan was only named the buyer of First Republic after the FDIC first held a competitive bidding process.

The FDIC declined to comment on Warren’s comments.

A White House spokesperson pointed to comments made Monday by press secretary Karine Jean-Pierre, who stressed the FDIC followed procedures in the First Republic resolution.

“FDIC has a statutory obligation to choose the path that’s the least cost to the Deposit Insurance Fund. And that’s what they did here,” Jean-Pierre said. “It was necessary to ensure continued resilience of the banking system and to do so at no cost to the taxpayers.”

Jean-Pierre argued that no recent administration has “done more to promote competition” and address concentration across industries.

Sheila Bair, who led the FDIC in 2008 when it sold Washington Mutual to JPMorgan, defended how the agency handled the First Republic failure.

Bair noted the FDIC must choose the option that does the least damage to its insurance fund. Often, it’s the biggest banks that have the firepower to make the best offers.

“This is how the system works. If you put a bank up for auction, you’ve got to go with the best bid,” Bair told CNN on Monday in a phone interview.

For his part, JPMorgan CEO Jamie Dimon is hopeful his bank’s takeover of First Republic eases the stress in the banking system.

The First Republic deal “helps stabilize the system, which is a good thing,” Dimon said on Monday in response to a question from CNN.

Clawing back banker pay

In the wake of the bank failures, Warren is calling for accountability — both of bank executives and regulators.

Warren has co-sponsored a bill with Republican Sen. Josh Hawley that would empower the FDIC to claw back executive compensation at banks that fail.

“These executives who take on a lot of risk and then toss their banks over a cliff will actually have to give up those bonuses and huge salaries,” Warren said, adding she wants the Senate Banking Committee to mark up the bill next week.

Meanwhile, regulators continue to study their own mistakes in the lead-up to the implosion of Silicon Valley Bank.

The Federal Reserve’s own autopsy on the Silicon Valley Bank failure acknowledged regulatory and supervision weaknesses at the Fed.

Fed Chair Jerome Powell said last week he welcomes the “self-critical” report and agrees with and supports recommendations on how to strengthen the Fed’s practices.

For her part, Warren said the Silicon Valley Bank report shows why she continues to believe Jerome Powell shouldn’t be at the helm of the Fed.

“In this failure to regulate and supervise these banks, somebody needs to be held accountable. And that’s the guy at the top, the one who sets the tone, the one who made it happen,” Warren said.

The Fed declined to comment.

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