Bank anxiety is back

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Apr 26, 2023 View in browser   By Zachary Warmbrodt Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro. The unfinished business from last month’s banking turmoil is rearing its head again in Washington. First Republic — a “zombie bank” in the eyes of regulators and investors — is on the verge of needing a lifeline from the government or the private sector as it struggles to recover from a $100 billion deposit run. U.S. officials are monitoring First Republic’s deposits as its stock price tanks, falling by nearly 50 percent Tuesday. The company said Monday it was seeking “strategic alternatives,” underscoring the reality that a $30 billion rescue by big banks is failing to sustain the San Francisco-based lender. A source involved in talks about the bank’s future told our Ben White that no one is expected to buy First Republic without substantial federal guarantees. Sam reports that First Republic’s management is aware their options are severely limited, according to a person who’s been in touch with them, which would make government assistance their best bet. “They’re between a rock and a hard place,” the person said. It comes as worries about banking instability had started to recede in Washington. Our Eleanor Mueller has a new piece about how the push to expand deposit insurance after SVB and Signature Bank’s failures appears to be stalling. Lawmakers face resistance from the right and the left — and little industry pressure to act. “We've gone from the overreaction to a period of time where we're thinking it through," Sen. Thom Tillis (R-N.C.) told Eleanor. It’s Wednesday — Here we go again? Let us know what you’re hearing: Zach Warmbrodt, Sam Sutton.   HAPPENING NEXT WEEK! 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Don’t miss a thing — subscribe today for a front row seat.     Driving the day House Republicans negotiate their debt limit bill … Dan Tarullo and Sarah Bloom Raskin discuss post-SVB bank supervision and deposit insurance at a Peterson Institute virtual event at 9 a.m. … House Financial Services marks up capital markets and CFPB bills at 10 a.m. (more below) … Senate Banking holds a hearing on housing at 10 a.m. … CFPB Director Rohit Chopra talks “zombie debt” at a Brooklyn field hearing at 1 p.m. … Regulators will release SVB review findings this week — Set aside some time on Friday. The Fed and the FDIC will release highly anticipated reports on how they handled the failures of SVB and Signature Bank. The findings could rekindle congressional action and regulatory changes. The FDIC is expected to release a separate review of deposit insurance by Monday. First in MM: Democrats press agencies to finish executive pay rule — Rep.Nydia Velázquez and Sen. Chris Van Hollen today will urge regulators to finalize long-delayed incentive-based executive compensation rules by the end of this year, warning that the pay arrangements may have helped fuel SVB’s collapse and could threaten other financial institutions. McCarthy struggles in debt limit push — Our Congress team reports that Speaker Kevin McCarthy and his leadership team want to move ahead with their debt ceiling plan as soon as today but are having problems nailing down GOP votes. McHenry takes a swing at the next JOBS Act — Eleanor reports that House Financial Services later today will vote on Republican-led revamps of investing rules and the CFPB. A sweeping capital markets bill by Chair Patrick McHenry (R-N.C.) — his long-awaited follow-up to the 2012 JOBS Act — would relax SEC disclosure requirements for more startups and allow more individuals to invest in private securities offerings. A bill by Rep. Andy Barr (R-Ky.) would overhaul the CFPB by replacing its director with a bipartisan commission and placing the agency under congressional appropriations. While the CFPB bill will surely be partisan, McHenry has cited capital markets legislation as a priority for finding compromise with Democrats. “At this moment, it could go either way,” Rep. Gregory Meeks (D-N.Y.) said Tuesday night when asked whether Democrats would back McHenry’s bill. “We’re working hard trying to get something done in a bipartisan way.” As of right now, “it’s possible.” Economy Bipartisanship stirs at Senate Banking — Senate Banking Chair Sherrod Brown and ranking member Tim Scott have a new bill that would try to combat fentanyl trafficking via sanctions and anti-money laundering rules. They’re trying to get the ball rolling on affordable housing, too. On Wednesday, the pair will hold a hearing aimed at building consensus on housing policy. Scott has released his own housing discussion draft. Brown will say in his opening statement at the hearing that the committee will look at proposals to make housing “more affordable, safer, and easier to find.” How did banks do after SVB? New data is here. — IntraFi shared results of the quarterly banker survey it conducted earlier this month, shedding light on how banks have responded to industry turmoil. A few highlights of what it gathered from more than 550 banks: — Most lenders didn’t see significant disruption after the SVB and Signature rescues. Seventy-seven percent said deposits didn’t increase or decrease much. — Only 18 percent of banks took advantage of loans from the Fed's Bank Term Funding Program established after SVB's collapse. — Fifty-two percent of the smallest lenders — those with less than $1 billion in assets — reported having 20 percent or less of their deposits as uninsured. About 47 percent of all respondents reported that level of uninsured deposits. Regulatory Corner U.S. signals crackdown on AI-related discrimination — Reuters has a rundown of Tuesday’s joint warning by the heads of the CFPB, FTC and DoJ civil rights unit about the risks of discrimination from automated systems used in lending, housing and employment. CFPB Director Rohit Chopra said his agency is trying to reach tech sector whistleblowers to determine where new technologies run afoul of civil rights laws.   STEP INSIDE THE WEST WING: What's really happening in West Wing offices? Find out who's up, who's down, and who really has the president’s ear in our West Wing Playbook newsletter, the insider's guide to the Biden White House and Cabinet. For buzzy nuggets and details that you won't find anywhere else, subscribe today.       Follow us on Twitter Mark McQuillian @mcqdc Ben White @morningmoneyben Victoria Guida @vtg2 Katy O'Donnell @katyodonnell_ Zachary Warmbrodt @Zachary Sam Sutton @samjsutton   Follow us

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