WASHINGTON, DC (CNN) – JPMorgan Chase has once again come to the rescue of the banking system by taking over a doomed bank. And that worries Democratic Senator Elizabeth Warren.
By blessing JPMorgan’s acquisition of First Republic Bank, Warren fears federal regulators have only made the “too big to fail” problem worse.
“What happened here, because a bank was underregulated and started to fail, the federal government helped JPMorgan Chase grow even bigger,” Warren told CNN Tuesday in her first on-camera interview about the First Republic’s failure.
JPMorgan agreed to pay the Federal Deposit Insurance Corporation $10.6 billion to buy most of the First Republic after regulators shut down the major regional bank. As a relief to investors and bank customers, the JPMorgan deal protects all First Republic depositors.
“Things may be looking good today while everything is in full swing, but ultimately if one of these giant banks, JPMorgan Chase, stumbles, it’s the American taxpayers who will be at stake,” Warren said.
Asked if the decision to let JPMorgan grow even bigger gives it pause on how Biden-appointed regulators have handled the crisis, Warren argued that another bank should have bought First Republic.
“There were multiple bidders here and every other bidder was much smaller than JPMorgan Chase. I think it’s important to look at the competitive implications and try to maintain a more diversified banking system,” Warren said. “Have someone else buy this bank. Have someone else take over these assets.”
“How the system works”
Of course, JPMorgan was only named First Republic’s buyer after the FDIC initially conducted a bidding process.
The FDIC declined to comment on Warren’s comments.
A White House spokesman referred to comments by Press Secretary Karine Jean-Pierre Monday that stressed the FDIC followed the procedures of the First Republic resolution.
“The FDIC is required by law to choose the path that causes the least cost to the deposit insurance fund. And that’s what they did here,” said Jean-Pierre. “It was necessary to ensure the continued resilience of the banking system at no cost to taxpayers.”
Jean-Pierre argued that no new government “has done more to encourage competition” and address cross-industry concentration.
Sheila Bair, who headed the FDIC when she sold Washington Mutual to JPMorgan in 2008, defended how the agency dealt with the failure of the First Republic.
Bair pointed out that the FDIC must choose the option that causes the least damage to its insurance fund. It is often the largest banks that have the clout to make the best deals.
“That’s how the system works. When you auction a bank, you have to make the best bid,” Bair told CNN in a phone interview Monday.
For his part, JPMorgan CEO Jamie Dimon is hoping his bank’s acquisition of First Republic will ease the stress in the banking system.
The deal with the First Republic “helps stabilize the system, which is a good thing,” Dimon said Monday in response to a question from CNN.
reclaim banker salaries
In the wake of bank failures, Warren calls for accountability — from both bank managers and regulators.
Warren, along with Republican Senator Josh Hawley, introduced a bill that would authorize the FDIC to reclaim executive compensation from bankrupt banks.
“Those executives who take a lot of risk and then throw their banks over a cliff actually have to forego those bonuses and huge salaries,” Warren said, adding that she wants the Senate Banking Committee to raise the bill next week.
Meanwhile, regulators continue to investigate their own mistakes leading up to the Silicon Valley bank implosion.
The Federal Reserve’s own autopsy on the failure of the Silicon Valley Bank confirmed regulatory and supervisory weaknesses at the Fed.
Fed Chair Jerome Powell said last week he welcomed the “self-critical” report and agreed with the recommendations and supported how the Fed’s practices could be strengthened.
For her part, Warren said the Silicon Valley Bank’s report shows why it continues to believe Jerome Powell shouldn’t be at the helm of the Fed.
“Someone needs to be held accountable for this failure to regulate and supervise these banks. And that’s the guy at the top, the one who sets the tone, the one who made it possible,” Warren said.
The Fed declined to comment.