BIG AND BIGGER — Readers will be forgiven if it felt like 2008 all over again today, as giant mega-bank JPMorgan Chase and its charismatic but controversial CEO Jamie Dimon swooped in to buy up much of the assets of failing California lender First Republic and (hopefully) bring an end to the latest crisis in the banking system. The deal, under which JPMorgan will take on all of First Republic’s deposits both insured and uninsured, drew the expected round of rebukes from progressive Democrats like Sen. Elizabeth Warren (D-Mass.). “The failure of First Republic Bank shows how deregulation has made the too big to fail problem even worse,” Warren tweeted. “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.” Both JPMorgan and President Biden tried to counter Warren, arguing that while Dimon’s giant bank is getting some backstop from the FDIC for potential losses on some of First Republic’s loans, the deal does not actually put taxpayer money at risk. “These actions are going to make sure the banking system is safe and sound, and that includes protecting small businesses across the country,” Biden said of the deal, which followed the federal rescues and full deposit guarantees in March for Silicon Valley and Signature banks. “Depositors are being protected, shareholders are losing their investments and, critically, taxpayers are not the ones who are on the hook.” Dimon, for his part, had even less time for critics like Warren who believe JPMorgan is getting a sweetheart deal and that giant banks like his shouldn’t even exist. “I don’t really care about gossip from other people,” Dimon said in response to a reporter’s question about critics arguing the purchase was unfair. “We bank countries, we bank the IMF, we bank the World Bank. You need large, successful banks, and anyone who thinks it would be good for the United States of America not to have that should call me directly.” Dimon and JPMorgan — the most storied banking franchise in the nation’s history with roots dating to Aaron Burr’s founding of Manhattan Bank in 1799 — faced similar criticism during the 2008 and 2009 crisis when they swept up the smoldering ashes of failed lender Washington Mutual and cratered investment bank Bear Stearns with help from the federal government. But even in both these cases, JPMorgan took on much of the residual problems with both institutions, resulting in nearly $20 billion in regulatory settlements. To be sure, the First Republic purchase was not an act of purely patriotic altruism, though it may bring a close at least to the current phase of bank meltdowns. These meltdowns came after SVB, Signature and First Republic found themselves with enormous deposits over the FDIC-insured cap of $250,000 and saddled with bond and other investments that have plunged in value as the Fed has rapidly boosted interest rates to battle inflation. Depositors sensed that their money was at risk and abandoned all three. In the first two cases, the FDIC took on responsibility for all deposits. In this case, they don’t have to, which is why JPMorgan won out over other bidders. The FDIC is required to accept the bid that will wind up costing its deposit insurance fund the least. But JPMorgan is getting valuable assets from a long-admired California institution that boasts the kind of high-net worth individuals every big bank covets. And the bank said it expects to at least make some money off the deal. JPMorgan’s stock rose around 2 percent on today, indicating shareholders also believe the deal is a good one. This is clearly not the kind of headline the Biden administration wanted — “Nation’s Largest Bank Gets Bigger!” — but it’s not clear there was a better alternative that would not have spiked recession risk. And Warren and other progressives directed much of their ire at deregulation that took place during the Trump administration for creating the conditions that allowed all three banks to collapse in the first place. As for JPMorgan, financial historian John Steele Gordon noted to POLITICO that it’s neither hero nor villain in the current situation. “Banks are seldom if ever heroic. That’s not their job," he said. “So they’ll always demand a deal that will keep them whole… Banks have been getting fewer in number for decades now, and that’s a good thing, up to a point, as large banks are much safer than small ones." Whether or not we have passed that point where JPMorgan is simply too large and powerful is one that can only be addressed and potentially solved by significant new legislation, something not happening anytime soon. For now, Americans can at least be relieved that this part of the Fed-induced financial sector drama is probably over. There aren’t many more out there like SVB, Signature and First Republic. But there is plenty of danger potentially still lurking in other corners. Welcome to POLITICO Nightly. Reach out with news, tips and ideas at nightly@politico.com. Or contact tonight’s author at bwhite@politico.com or on Twitter at @EconomyBen.
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