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“Too Big To Fail” And The 2024 Election

Updated: Jul 12, 2023


Once an outspoken critic of “too big to fail” banks, President Biden’s administration has facilitated the biggest bank in the U.S. getting bigger.

This past weekend saw the second largest bank failure in U.S. history. (The largest was the failure of Washington Mutual in 2008.) After watching it lose $100 billion (that’s billion with a “b”) in deposits in March alone, on Sunday federal regulators seized First Republic Bank and sold it to JPMorgan Chase. As The Wall Street Journal reported, JPMorgan Chase will assume all of First Republic’s $92 billion in deposits and most its assets. The Federal Deposit Insurance Corporation (FDIC) will share losses with JPMorgan Chase to the tune of about $13 billion and also will provide the bank with $50 billion in financing.


With more than $3.2 trillion in assets (that’s trillion with a “t”), even before this weekend’s sale, JPMorgan Chase was the United States’ largest bank.


In other words: the Biden administration just willingly facilitated the overnight growth of a banking behemoth. If you were holding onto any doubts about the federal government’s adherence to “too big to fail” — the finance theory that certain corporations, especially financial institutions, are too large and too integral to the global financial system to allow them to go under — you can dispose of those questions now.


There are a litany of questions First Republic’s failure and its assumption by JPMorgan Chase raise from a policy perspective. But from a political perspective, the question is: will this development make it even more difficult for President Joe Biden to win a second White House term? Some top Democratic lawmakers have already questioned the First Republic sale, but what does the court of public opinion have to say about the matter?


That’s our topic for this week, but before getting into it, let’s take a look at President Biden’s own history on “too big to fail” and banking consolidation more broadly.


A Shifting Perspective On The Growth Of Banks?

First Republic’s failure was hardly a surprise: press reports had indicated for the last week that federal regulators no longer saw a viable future for the financial institution.


What was a surprise, however, was that federal regulators allowed JPMorgan Chase to assume First Republic’s assets, including its deposits. The Biden administration, along with most Democrats in Washington, have been highly critical of concentration within the banking sector since the financial crisis of 2008.


In remarks at Georgetown University in December 2016, just before the end of the Obama administration, then-Vice President Biden said, “We can’t go back to the days when [the banks] take massive risks with the knowledge that taxpayer bailout is around the corner when they fail. We can’t afford that. The country can’t afford that.”


After winning his own presidential race four years later, President-elect Biden chose Ted Kaufman to lead his transition team. Kaufman was a longtime friend who had served as Biden’s chief of staff in the Senate. As The Wall Street Journal reported at the time, Kaufman routinely called for limiting the size of U.S. banks. That includes in 2009 when Kaufman was in the U.S. Senate serving out the remainder of Biden’s final Senate term. As Morning Consult noted in a feature story on Kaufman, when the Dodd-Frank Wall Street Reform and Consumer Protection Act was being debated, Sen. Kaufman joined Sen. Sherrod Brown (D-Ohio) in cosponsoring an amendment that would have restricted the non-deposit liabilities of banks to two percent of the gross domestic product. The amendment failed 61-33.


President Biden also tried to limit bank growth by regulation. In July 2021, he signed an executive order that recommend federal banking regulators, including the Federal Reserve, FDIC, and Office of the Comptroller of the Currency, work with the U.S. Department of Justice to update guidance for bank mergers.


Despite this history, this past Monday morning President Biden defended selling First Republic to the nation’s largest bank. “These actions are going to make sure that the banking system is safe and sound, and that includes protecting small businesses across the country who need to make payroll for workers,” President Biden promised. More broadly, the administration’s argument has been that, of all of the bids regulators received for First Republic over the weekend, JPMorgan Chase’s was the least expensive for the government and that regulators therefore had an obligation to accept it.


While that argument may be true, it has not appeased some banking industry critics.


Top Democrats Question First Republic Sale

Biden’s former Chief of Staff Kaufman and Sen. Brown, who currently chairs the powerful Senate Banking Committee, are hardly the only two Democrats who have criticized “too big to fail” over the years. That is why, over the weekend, Biden administration officials spent significant time conducting outreach to congressional Democrats (and some Republicans) in an attempt to preempt criticisms of the First Republic-JPMorgan Chase deal.


The outreach seems to have had limited effect — at least on Democrats.


First the good news (for the White House): House Financial Services Committee (HFSC) Ranking Member Maxine Waters (D-Calif.) defended the First Republic sale. She argued, “This prompt and cost-effective sale of the bank protects depositors, limits contagion, and ensures that no cost is borne to our nation’s taxpayers.” HFSC Chair Patrick McHenry, (R-N.C.) agreed, saying he appreciated regulators “quick work.” (Chair McHenry even questioned why the FDIC did not do the same thing in March when Silicon Valley was placed into receivership.)


But the praise did not go much further than those words.


On Twitter early Monday morning, Sen. Elizabeth Warren (D-Mass.) criticized the deal, arguing “a poorly supervised bank was snapped up by an even bigger bank” and that, “ultimately, taxpayers will be on the hook” for the bailout. Sen. Warren also released a statement calling for major reforms to banking regulations, saying, “the failure of First Republic Bank shows how deregulation has made the too big to fail problem even worse.”


Banking Committee Chair Brown joined Sen. Warren in her calls for stronger regulation. As The Hill reported, Sen. Brown said, “First Republic Bank’s risky behavior, unique business model, and management failures led to significant problems, and it’s clear we need stronger guardrails in place. We must make large banks more resilient against failure so that we protect financial stability and ensure competition in the long run.”


While HFSC Chair McHenry praised the First Republic-JP Morgan Chase deal, conservative commentators balked.


Writing in the New York Post, the Manhattan Institute’s Nicole Gelinas noted three of the United States’ four biggest banks — JPMorgan Chase, along with Citigroup and Wells Fargo — reported “blowout” earnings (specifically, $22 billion) last week. She argued, “A monolith of big banks is bad for small businesses” and concluded, “there’s the long-term risk: Someday, a big bank will start to fail. What will Biden do?”


Like these detractors, Robert F. Kennedy, Jr. also made it clear he is worried about bank consolidations. On Twitter on Monday, he said, “I understand the rationale for the rescue of First Republic Bank. The problem isn’t this specific bailout. It’s a system of too-big-to-fail institutions that requires bailouts in the first place.”


Kennedy is, of course, one of the two Democrats who are running against President Biden in the 2024 Democratic presidential primary.


Could he gain traction on this issue in the primary? Let’s take a look.


How Do American Feel About Banks And “Too Big To Fail”?

Americans do not like banks or large financial institutions. Full stop.


A Pew Research Center poll released in October 2022 found only 38 percent of Republicans and 41 percent of Democrats believe banks and other financial institutions have a positive effect on the United States. In a list of key institutions, including the military and universities, only “large corporations” received lower approval numbers. Additionally, according to Gallup, only 27 percent of Americans have a great deal or a lot of confidence in banks’ operations.


Those numbers are awful — but they do not mean voters will think the Biden administration’s actions were wrong.


According to an Ipsos poll from earlier this year, half of Americans (49 percent) are in favor of government bailouts of U.S. financial institutions, a number that is up 12 points from 2012. Democrats are more likely to say they would support bailouts (55 percent) than Republicans (40 percent)—a good sign for President Biden’s primary campaign against Robert Kennedy, Jr. There also is this: a March YouGov poll found 64 percent of Democrats supported the Biden administration’s bailout of Silicon Valley Bank.


Still, more than 8 in 10 Americans (84 percent), including 85 percent of Democrats and 86 percent of Republicans believe taxpayers should not be on the hook for bailouts.


With additional potential bank failures looming on the horizon, the strength of the banking sector and the question of whether the Biden administration has only furthered the notion of “too big to fail” financial institutions will almost certainly be an issue in the 2024 election campaign.


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