Senator Warren Calls on FDIC to "Quickly, Forcefully, and Publicly" Reject Backdoor Bailout Attempt by Big Banks

WASHINGTON, May 20 -- Sen. Elizabeth Warren, D-Massachusetts, issued the following news release and letter:

U.S. Senator Elizabeth Warren (D-Mass.) sent a letter to Federal Deposit Insurance Corporation (FDIC) Chair Martin Gruenberg, urging him to asking him to oppose a reported attempt by Big Banks to repay nearly $16 billion that they owe to replenish the Federal Deposit Insurance Fund with Treasury bonds that are worth much less.

The implosions of Silicon Valley, Signature, and First Republic Banks have cost the Federal Deposit Insurance Fund a combined $29 billion. Last week, the FDIC released a proposal to replenish a portion of these costs by imposing a special assessment that would fall primarily on the nation's largest banks. Earlier this week, however, the Wall Street Journal reported that the banks are now seeking to make these payments with devalued Treasury bonds, transferring the losses to U.S. taxpayers.

"In simple terms, the biggest banks - who have experienced a surge in deposits after the SVB failure, received favorable loans from the Fed's Bank Term Funding Program in March 2023, and had $30 billion of their own deposits guaranteed in the First Republic sale, - are now seeking to pay back the gap in the deposit insurance fund with devalued assets, getting those assets off their books, while leaving the federal government to assume the risk," wrote Senator Warren.

In the letter, Senator Warren calls on Chair Gruenberg to quickly, forcefully, and publicly reject this "unjustified giveaway that could be worth billions of dollars to the big banks and threatens the stability of the deposit insurance trust fund."

"Approval of this proposal would be an outrageous breach of the FDIC's responsibilities, and I urge you to reject it or any similar approach that would unjustly enrich big banks at taxpayer expense," concluded Senator Warren.

Senator Warren is a leading voice on the financial system, holding bank executives accountable for gross mismanagement and advocating for critical regulations to protect consumers, the financial system, and the economy:

* On May 18, 2023, Senator Warren sent a letter to Martin Gruenberg, Chair of the Federal Deposit Investment Corporation (FDIC) and Michael Hsu, Acting Comptroller of the Currency, questioning the terms of the deal and the rationale behind the FDIC and Office of the Comptroller of the Currency's (OCC) approval of the sale of First Republic Bank (First Republic) to JPMorgan Chase (JP Morgan).

* On May 16, 2023, at a hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren blasted the former CEOs of SVB and Signature Bank for lobbying Congress to weaken banking regulations, loading up their banks with risk, ignoring regulators' warnings, and crashing their banks - all while keeping their multi-million dollar paychecks.

* On May 4, 2023, at hearing of the Senate Banking, Housing, and Urban Affairs Committee, Senator Warren highlighted the importance of passing strong legislation to provide the FDIC with the necessary authority to claw back executive pay whenever banks collapse, regardless of the specific process the FDIC uses to pick up the pieces.

* On May 3, 2023, Senators Warren, Chair of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, and John Kennedy (R-La.), Ranking Member of the Economic Policy Subcommittee, sent a letter to Mark Bialek, the Inspector General of the Federal Reserve (Fed), inviting him to testify at their hearing next week on the Fed's role overseeing Silicon Valley Bank (SVB) before its failure and to consider legislative reforms that strengthen transparency and accountability at the Fed.

* On April 28, 2023, following the Fed's report on SVB's failure, Senator Warren released a statement calling on the Fed to immediately adopt stricter bank oversight and called out Chair Powell's failure to supervise and regulate banks that posed a systemic risk to the economy.

* On April 10, 2023, Senator Warren and Representative Alexandria Ocasio-Cortez (D-N.Y.) sent a letter to 14 of the largest depositors at Silicon Valley Bank (SVB), raising questions about reports of the failed bank's "coddling" and "white glove" treatment of its largest venture capitalist (VC) depositors, their executives, and startup firms, and those firms' decision to hold huge, uninsured accounts at the bank.

* On March 31, 2023, Senator Warren and Thom Tillis (R-N.C.) led a bipartisan group of senators to reintroduce the Financial Regulators Transparency Act, bipartisan legislation that would subject regional Federal Reserve Banks to the Freedom of Information Act (FOIA) and ensure their responsiveness to congressional and public information requests.

* On March 30, 2023, Senators Warren, Richard Blumenthal (D-Conn.), and Tammy Duckworth (D-Ill.) sent a letter to Michael Barr, Vice Chair for Supervision of the Federal Reserve, Martin Gruenberg, Chairman of the Federal Deposit Insurance Corporation, and Michael Hsu, Comptroller of the Currency, urging the banking regulators to establish strong bank capital requirements to protect consumers and preserve the safety and soundness of the banking system.

* On March 29, 2023, Senators Warren and Catherine Cortez Masto (D-Nev.), both members of the Senate Banking, Housing, and Urban Affairs Committee, Josh Hawley (R-Mo.), and Mike Braun (R-Ind.) introduced the Failed Bank Executives Clawback Act - bipartisan legislation that would require that, in the event of a bank failure, federal regulators claw back all or part of the compensation received by bank executives in the five-year period preceding the failure.

* On March 22, 2023, Senators Warren and Rick Scott (R-Fla.) introduced bipartisan legislation to require a presidentially-appointed and Senate-confirmed Inspector General to the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection.

* On March 22, 2023, Senator Warren led 11 senators in a letter to Fed's Vice Chair for Supervision, Michael Barr, calling on him to exercise the Fed's authority to apply stronger regulation and supervision to banks with assets totaling $100 to $250 billion.

* On March 16, 2023, Senator Warren sent a letter to Fed Chair Powell, criticizing his leadership failures at the Fed that directly contributed to the failures of SVB and Signature Bank, and the significant risk to the banking system and the economy unleashed by those collapses.

* On March 15, 2023, Senator Warren delivered a speech on the Senate Floor about the failures of SVB and Signature, spoke about her new legislation, the Secure Viable Banking Act, which would reverse the mistakes that Congress and President Trump made with rollbacks of Dodd-Frank.

* On March 14, 2023, Senator Warren sent a letter to ex-SVB CEO Greg Becker, asking for answers about his and SVB lobbyists' efforts to roll back Dodd-Frank rules prior to the collapse of the bank.

* On March 14, 2023, Senator Warren called on Chair Powell to recuse himself from the Fed's review of the SVB failure.

* In December 2022, Senator Warren and then-Senator Pat Toomey (R-Pa.) introduced the bipartisan Financial Regulators Transparency Act, legislation that would strengthen Federal Reserve accountability and ensure that no financial regulator can withhold critical ethics-related information from Congress.

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I write regarding reports from earlier this week that big banks are seeking approval for a "gambit" that will allow them to repay nearly $16 billion that they owe to replenish the federal deposit insurance fund with Treasury bonds that are worth much less/1 - "an extreme transfer of losses from banks to taxpayers."/2 The FDIC should quickly, forcefully, and publicly reject this proposed backdoor bailout for big banks.

The deposit insurance fund has been tapped for $16 billion to cover the failures of Silicon Valley Bank (SVB) and Signature Bank,/3 and an additional $13 billion to cover the failure of First Republic Bank./4 Last week, the FDIC released a proposal to cover the costs of the SVB and Signature Bank shortfalls by imposing a special assessment that would fall primarily on the nation's largest banks, "the types of banking organizations that benefitted most from the protection of uninsured depositors."/5 That proposal was a positive development.

But according to this week's report,

Banks have spent the past week or so testing what would be a clever gambit: Paying billions of dollars they collectively owe to replenish a federal deposit insurance fund using Treasurys instead of cash. The idea--floated to regulators and lawmakers by PNC Financial Services Group and supported by others--could allow banks to take securities that are currently worth, say, 90 cents on the dollar, and give them to the Federal Deposit Insurance Corp. at full price./6

In simple terms, the biggest banks - who have experienced a surge in deposits after the SVB failure,/7 received favorable loans from the Fed's Bank Term Funding Program in March 2023,/8 and had $30 billion of their own deposits guaranteed in the First Republic sale,/9 - are now seeking to pay back the gap in the deposit insurance fund with devalued assets, getting those assets off their books, while leaving the federal government to assume the risk. This is an unjustified giveaway that could be worth billions of dollars to the big banks and threatens the stability of the deposit insurance trust fund.

Approval of this proposal would be an outrageous breach of the FDIC's responsibilities, and I urge you to reject it or any similar approach that would unjustly enrich big banks at taxpayer expense.

Sincerely,

Elizabeth Warren

United States Senator

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View footnotes here: https://www.warren.senate.gov/imo/media/doc/2023.05.18%20Letter%20to%20FDIC%20re%20replenishment%20of%20deposit%20insurance%20fund.pdf

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Original text here: https://www.warren.senate.gov/oversight/letters/senator-warren-calls-on-fdic-to-quickly-forcefully-and-publicly-reject-backdoor-bailout-attempt-by-big-banks