News: The new banking rift

Friday, May 12, 2023

The new banking rift

May 12, 2023

Presented by Stop the Deficit Squawks

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Biden appointees at the FDIC are proposing that larger lenders pay for the failures of Silicon Valley Bank and Signature Bank. The new proposal is dividing the banking industry but drawing bipartisan applause on Capitol Hill.

My colleague Eleanor Mueller canvassed lawmakers Thursday and found broad support for the FDIC’s proposed fee, which would apply to banks that hold more than $5 billion in uninsured deposits. The FDIC is required by law to recoup the $15.8 billion hit to the deposit insurance fund that was triggered by protecting SVB and Signature’s uninsured deposits. (The overall loss from the failures is estimated to be $18.5 billion.)

Rep. Andy Barr, who leads House Republican oversight of the bank regulators, told Eleanor, “it looks good to me.” Senate Banking Chair Sherrod Brown and Sen. Elizabeth Warren said they also back the move. They echoed the Independent Community Bankers of America, which succeeded in fending off fees for small banks. The group prevailed in a lobbying fight it launched mere hours after the government rescued SVB and Signature.

“It’s what I have asked [FDIC Chairman Martin] Gruenberg to do,” Barr said. “To exercise his authority to reduce the exposure of smaller institutions and tailor it.”

Inside the FDIC, the situation was more contentious. Two Republican board members — former Hill aides — opposed the agency’s approach to refilling its deposit insurance fund.

FDIC Vice Chair Travis Hill said the five banks that combined would pay nearly half of the bill experienced deposit inflows immediately after the SVB failure — meaning they were relative safe havens during the turmoil and benefited the least from the government’s decision to backstop uninsured deposits.

“Setting premiums on uninsured deposits is like charging me for insurance on my house based on the value of my neighbor’s,” said Federal Financial Analytics managing partner Karen Petrou, who also took issue with the new policy.

It’s unclear to what extent larger banks will come out swinging or go along with it. The Financial Services Forum, which represents the biggest, systemically important U.S. banks, declined to comment. The Bank Policy Institute, which represents a broader group of the largest banks, didn’t issue a response, either. The American Bankers Association struck a somewhat neutral tone, saying it appreciated the community bank exclusion but was still reviewing the proposal.

Happy Friday — Have a great Mother’s Day weekend. Send tips: Zach Warmbrodt, Sam Sutton.

A message from Stop the Deficit Squawks:

The Committee for a Responsible Federal Budget is helping MAGA extremists push us toward a catastrophic default on U.S. debt. CRFB praised Kevin McCarthy’s Default on America bill that risks 800,000 jobs and would kick Americans off their health care, all while protecting wealthy tax cheats from paying what they owe. CRFB doesn’t care about a strong economy or fiscal responsibility – they care about their wealthy donors. There’s nothing “responsible” about CRFB.

Driving the day

Fed Governor Philip Jefferson will talk monetary policy panel at a Hoover Institution conference at 7:45 p.m.

Big move at SBA — Patrick Kelley, a top SBA official overseeing the agency’s lending programs, is stepping down, according to sources familiar with the matter. Kelley took the role as the SBA pivoted to winding down the Paycheck Protection Program. He’s leaving after finalizing a major revamp of SBA’s flagship 7(a) lending program with rules that will open it up to fintechs.

The 7(a) overhaul Kelley oversaw triggered pushback from traditional banks and lawmakers. He recently appeared at two hearings to face questions on the new policies.

House Small Business Chair Roger Williams said about Kelley’s departure: “I hope the SBA will take a step back and reevaluate these rules until the agency can find a full-time replacement equipped to answer the many unanswered questions about the implementation of these rules proposed by both parties and the private sector.”

A glimmer of hope as the Big Four postpone — White House and Hill aides plan to meet again today on the debt-limit stalemate, after President Joe Biden and congressional leaders postponed a planned meeting until next week.

People familiar with the discussions characterized the delay as a positive move and a sign that talks were progressing. Republican lawmakers were less optimistic, with Speaker Kevin McCarthy telling reporters that “I have not seen from [the White House] a seriousness” that suggests a deal is imminent.

Yellen to meet with bank CEOs — Sam and Ben White report that Treasury Secretary Janet Yellen will meet in Washington next week with board members of the Bank Policy Institute, a lobbying group whose board is led by JPMorgan Chase CEO Jamie Dimon and includes Citigroup CEO Jane Fraser, to discuss the impasse over raising the government’s borrowing limit.

Dimon v. Trump — Dimon knocked former President Donald Trump for downplaying the consequences of a U.S. debt default, telling Bloomberg Television: “It’s one more thing he doesn’t know very much about.”

Dimon said the bank has a weekly debt-ceiling war room and that it would likely meet more often.

White House warns of downgrade — Biden economic adviser Heather Boushey told House Democrats Thursday that the U.S. credit rating will be downgraded if the government gets too close to defaulting on its debt.

“It was troubling,” Rep. Sheila Jackson Lee of Texas told Eleanor.

Mortgage spike looms — Zillow warned that the cost of mortgage payments could surge by 22 percent if the debt ceiling isn’t raised.

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Regulatory Corner

One-one-one with Jon Stewart, financial reformer — Our Declan Harty interviewed former “Daily Show” host Jon Stewart about his latest crusade: revamping stock market regulations.

“To have a system that has such power over the American economy, yet still lacks transparency and competition, I just thought that was fascinating,” Stewart told Declan. “It’s irresistible to some extent because of the power that it wields.”

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Fed’s Bowman wants outside review on SVB — Federal Reserve Governor Michelle Bowman told an audience in Frankfurt this morning that the central bank should tap an independent third party to scrutinize its actions tied to Silicon Valley Bank’s failure. Fed Vice Chair for Supervision Michael Barr, who led an internal investigation, has said he’d welcome an outside review.

“This would be a logical next step in holding ourselves accountable and would help to eliminate the doubts that may naturally accompany any self-assessment prepared and reviewed by a single member of the Board of Governors,” Bowman said.

Bowman also warned against sweeping changes to bank regulation.

“Calls for radical reform of the bank regulatory framework — as opposed to targeted changes to address identified root causes of banking system stress — are incompatible with the fundamental strength of the banking system,” she said.

Top Republican floats deposit safety net — Rep. Blaine Luetkemeyer — one of the first GOP lawmakers to call for a temporary, universal deposit backstop to slow bank runs post-SVB — has a new bill that would give the FDIC the ability to insure all non-interest bearing transaction accounts for up to 60 days in the event of a systemic crisis. It would require sign-off from the FDIC and Fed boards and the Treasury secretary.

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Crypto

Big business goes to bat for Coinbase — Declan reports that the U.S. Chamber of Commerce filed a motion in support of a Coinbase lawsuit against the SEC. The digital asset exchange is trying to force the agency to respond to a demand for new crypto rules.

Brad Sherman targets Grayscale — Rep. Brad Sherman — one of Capitol Hill’s most prominent crypto critics — asked the SEC to take a look at Grayscale Investments’ claim that the agency is barring it from letting investors redeem shares for Bitcoin that they deposited into its $17.4 billion trust, known as GBTC.

A message from Stop the Deficit Squawks:

The Committee for a Responsible Federal Budget claims to be for fiscal responsibility, but their actions tell a radically different story. CRFB is helping MAGA extremists push us toward a catastrophic default on U.S. debt, risking a recession that would skyrocket unemployment, wipe out retirement savings, and increase everyday costs for families. CRFB actually praised Kevin McCarthy’s extreme demands, taking his side in this reckless hostage taking exercise. CRFB called McCarthy’s Default on America Act “reasonable” even though it risks throwing eight hundred thousand Americans out of work, and would kick Americans off their health care, and gut nutrition assistance, all while protecting wealthy tax cheats from paying what they owe. CRFB doesn’t care about a strong economy or fiscal responsibility – they care about their wealthy donors. There’s nothing “responsible” about The Committee for a Responsible Federal Budget.