Sen. Elizabeth Warren.
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Senator Elizabeth Warren said First Republic’s takeover made the “too big to fail” problem worse.
The regional lender was seized by the FDIC and sold to JPMorgan on Monday.
“A poorly supervised bank was snapped up by an even bigger bank—ultimately taxpayers will be on the hook.”
Senator Elizabeth Warren warned the collapse of First Republic Bank will cost American taxpayers and said the year’s third US bank shutdown highlights the need for a regulatory overhaul.
“The failure of First Republic Bank shows how deregulation has made the too big to fail problem even worse,” the Massachusetts Democrat said in a Monday message to her 7 million followers on Twitter.
“Too big to fail” institutions are considered so large and interconnected to the financial system that their demise would wreak havoc on the economy.
JPMorgan, which was among the US banks that received a bailout in the 2008 financial crisis, will expand after taking over the bulk of First Republic’s assets in a $10.6 billion deal for the California lender.
The deal terms include drawing in $92 billion in deposits. First Republic was seized on Monday by the Federal Deposit Insurance Corporation.
“A poorly supervised bank was snapped up by an even bigger bank—ultimately taxpayers will be on the hook. Congress needs to make major reforms to fix a broken banking system,” said Warren, who sits on the Senate Banking Committee.
First Republic, which catered to wealthy clients, suffered first-quarter deposit outflows $100 billion, accelerating after the March implosion of Silicon Valley Bank, which depended heavily on venture capitalists and tech companies. Crypto-friendly Signature Bank was also shut down by regulators in March.
Warren was a high-profile critic of the Federal Reserve in March following the failure of Silicon Valley Bank. She was part of a bipartisan group of lawmakers who introduced legislation to beef up oversight of the central bank.
Before JPMorgan agreed to take over First Republic, it led a group of banks earlier this year to pitch in a collective $30 billion to bolster the smaller lender.
But the effort eventually wasn’t enough to keep the bank running as usual. The FDIC’s seizure of First Republic is expected to cost about $13 billion to the regulator. The FDIC’s insurance pool to cover depositors up is derived from banks.
“This part of the crisis is over,” JPMorgan CEO Jamie Dimon said Monday about its deal for First Republic, indicating he expects anxiety about risks to the banking industry to ease.
—Elizabeth Warren (@SenWarren) May 1, 2023