The recent bank auction that resulted in First Republic Bank being seized by federal regulators and sold to JPMorgan Chase has sparked a debate among political figures regarding banking regulation and the US economy.
President Joe Biden assured depositors that they would be protected and emphasized the importance of maintaining a safe and sound banking system.
“Let me be very clear, all depositors are being protected. Shareholders are losing their investments. And critically, taxpayers are not the ones that are on the hook…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,” said Biden.
First Republic’s 84 branches opened on Monday as branches of JPMorgan Chase, which acquired the bank’s $92 billion in deposits and $203 billion in loans and other securities. The bank’s shareholders are likely to be wiped out as part of the deal.
In contrast, presidential candidate Robert F. Kennedy Jr. criticized the bailout culture and the tendency for banks to take risky bets with depositors’ money,.
“Bailouts create perverse incentives for banks to make reckless swings for the fences with depositors’ money, knowing they will pocket vast windfalls when they connect and that the taxpayer will bail them out when they miss,” said Kennedy, who also highlighted the fact that profits from successful gambles go to the banks, while losses are borne by the public.
“When big banks’ gambles succeed, they profit,” said Kennedy. “When they fail, we bail them out. Heads they win, tails you lose.”
San Francisco-based First Republic was the third midsize bank to fail in two months.
It is the second-biggest bank failure in U.S. history, behind only Washington Mutual, which collapsed at the height of the 2008 financial crisis and was also taken over by JPMorgan.
Since the March collapses of Silicon Valley Bank and Signature Bank, First Republic has struggled as investors and depositors grew increasingly worried that it might not survive because of it has a large amount in uninsured deposits and is exposed to low interest rate loans.
Kennedy went on to emphasize the need to invest in the productive base of the economy, including infrastructure, labor, health, social, and natural capital.
“Ultimately the problem stems from an over-financialized economy,” said Kennedy. “Finance is supposed to serve production, not replace it. We need to reinvest in the productive base: infrastructure, labor, health, social, and natural capital.”
Furthermore, Kennedy pointed out the high level of military spending and healthcare costs in the US and their contribution to the staggering national debt.
“Between Oct. 2021 and Sep. 2022, the U.S. spent $877 billion on the military, more than the next 10 countries combined. These huge military expenditures, along with the rising costs of a for-profit healthcare system, have driven the U.S. national debt to over $31 trillion, nearly $5 trillion more than US GDP,” said Kennedy, who suggested redirecting a portion of the military budget towards domestic priorities.
“Imagine how we could rebuild our nation if we brought even half that amount home,” said Kennedy. “Let’s take care of those left behind. Let’s fix our infrastructure. Let’s clean up our environment. Let’s make our nation strong and prosperous again!”
The divergent views expressed by Biden and Kennedy on banking regulation, economic priorities, and government spending demonstrate the ongoing debate among political figures on how to ensure the stability and prosperity of the US economy.
Marianne Williamson, who is also seeking the Democratic nomination for president, did not comment on the nation’s third bank failure.