J.D. Vance’s Amendment to Prevent Megabank Consolidation Advances

Sen. J.D. Vance’s (R-OH) amendment to prevent megabank consolidations has advanced out of the Senate Banking Committee.

The Senate Banking Committee voted last week to advance the Recovering Executive Compensation from Unaccountable Practices (RECOUP) Act, which addresses:

… executive accountability following recent bank failures by strengthening certain existing authorities regarding senior executives. The bill also requires banks to adopt forward looking, corporate governance and accountability standards to promote responsible management and provides clawback authority in the event of a bank failure.

Senate Banking Committee Chairman Sherrod Brown (D-OH) and Sen. Tim Scott (R-SC), the ranking member of the committee, negotiated the terms of the bill and it was widely supported by the committee Republicans and Democrats.

Lawmakers pushed for the RECOUP Act in the wake of the collapse of the Silicon Valley Bank, First Republic Bank, and other financial institutions.

WATCH — CONTAGION: Customers Line Up Outside First Republic Bank to Withdraw Money After SVB Collapse:

Credit: @Dr_PhillipB via Spectee /TMX

After First Republic Bank collapsed, JP Morgan Chase, the largest bank with over $3 trillion in assets, purchased First Republic, leading to more consolidation of the banking system under the leadership of megabanks such as JP Morgan Chase.

Typically, banks are legally barred from buying another bank if they hold 10 percent or more of the country’s deposits, and JP Morgan Chase well exceeds that figure; however, there is a loophole that allows megabanks to purchase a bank if it is failing.

Vance proposed his amendment, Amendment #9, to the bill, which would seek to close the loophole to ensure that a megabank can only purchase the failing bank if it is the only viable bid to avoid a failure of the distressed financial institution.

Vance said during a Senate Banking hearing last week that America must protect its community banks:

We have a problem in this country. The problem is that a banking system that has largely worked for a lot of small businesses, the three tier banking system, where you have the big banks, you have a lot of regional banks that are that do important financial services, but you also have community banks that do a lot of lending services that nobody else is willing to do – that system is under threat.

The burden of our financial system falls heaviest on the small and midsize banks. The amendment that we proposed would mean that if the FDIC takes a bank into receivership, we only allow a massive bank to buy the failed bank’s assets unless there’s no other alternative and there’s no other buyer on the table.

One of the things that we learned from the SVB [Silicon Valley Bank] crisis and much of the fallout is that the big banks have a lower cost of capital. They’re able to absorb these things. But if that leads to concentration and if we don’t do anything to stop it, we’re going to wake up in a country that has three or four massive banks and no small and regional banks for our financial system. [Emphasis added]

That’s a disaster for our country. It’s a disaster for our small businesses and our consumers. We should do more to try to preserve the regional banking system of our country. I think it’s good for our people, it’s good for our country, and we don’t want to be like Europe, where they just have two or three massive national banks and no other alternatives for their consumers.

WATCH — J.D. Vance: “We’re Going to Wake Up in a Country” that Only Has “Massive National Banks”:

Senator JD Vance / YouTube

The Independent Community Bankers of America backed Vance’s amendment in a written statement, saying, “The Independent Community Bankers of America (ICBA) supports the Senator J. D. Vance amendment #9 to strengthen the application of existing 10 percent deposit concentration cap law when addressing bank failures.