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“You then allowed the concentration in the financial sector by allowing JPMorgan to purchase First Republic based on a wildly off-base estimate of some of the losses that existed in First Republic, and when our offices actually try to get information to better understand this, very often we’ve been steamrolled. If that doesn’t suggest a problem in the culture at the FDIC, I don’t know what does.”

WASHINGTON, D.C. – This morning, Senator JD Vance (R-OH) questioned Federal Deposit Insurance Corporation (FDIC) Chairman Marty Gruenberg during a hearing of the Committee on Banking, Housing, and Urban Affairs.

Through a year-long investigation, Senator Vance unearthed new evidence indicating Chair Gruenberg and the FDIC relied upon inaccurate calculations and estimates to sell First Republic Bank to JPMorgan Chase, likely violating the Least Cost Test and potentially breaking the law. Had First Republic’s assets been valued correctly, the FDIC would have been required, under the Least Cost Test, to liquidate First Republic rather than selling it to JPMorgan. Following the release of an independent report outlining serious personnel and misconduct issues at the FDIC, Senator Vance also raised concerns that Chair Gruenberg’s staff has stonewalled his investigation into the auction process for First Republic.

Senator Vance has demanded documents and an explanation from the FDIC for months. During today’s questioning, Senator Vance pushed Chair Greunberg to be forthcoming in response to future requests for information. 

Watch Senator Vance’s comments here and read a transcript below. 

Senator Vance: Thank you, Mr. Chair, for hosting the hearing, and thanks to the three witnesses for being here. I know that most of my colleagues have focused their attention on the report of some pretty troubling personnel management over at the FDIC from sexual harassment on down, and I share their concerns.

What I want to focus on today is whether some of the problems that have been identified in the FDIC, Chair Gruenberg, actually make it harder for the FDIC to do its very important job in our financial system.

To pick a particular hobbyhorse, something I’ve been focused on, as you know, in our private conversations and our public conversations, we have a massive, massive problem and a divergence in public information, public reporting, on the failure of First Republic and how it was sold to JPMorgan.

And unfortunately, we also have a troubling lack of forthrightness from your agency about some of the underlying justifications for why JPMorgan was allowed to purchase First Republic instead of some of the regional banks that were interested in purchasing it, or instead of another option, more specifically liquidation.

I want to drill in on something. In public and in some of our conversations, Chair Gruenberg, you have said that the difference between the loss — if First Republic went to JPMorgan versus a regional bank — the loss spread was $20 billion. Is that correct?

Chair Gruenberg: That was one estimate, Senator.

Senator Vance: That’s one estimate. Other estimates that have been out there have the loss ratio or the loss spread at $1 billion or substantially smaller.

One of the things that I did with Senator Warren, one of the rare acts of bipartisanship on the Banking Committee, is that we sent your office a lettertrying to better understand what estimates and what data points went into the least cost analysis that you used to ensure that JPMorgan was allowed to buy First Republic Bank.

Chair Gruenberg, what was the FDIC loss estimate for First Republic’s single-family residential portfolio? Do you remember that?

Chair Gruenberg: Not offhand, Senator, but I would be glad to follow up with you.

Senator Vance: Happy to jog your memory. FDIC staff turned over information that suggested your estimate for the single-family residential portfolio of First Republic, the loss there was $30.3 billion, obviously a massive amount of money.

Now, based on information that my staff has uncovered, sometimes with cooperation of the FDIC and sometimes, Chair Gruenberg, with the absence or the opposite of cooperation from the FDIC, we think there’s a good amount of evidence that the actual loss in First Republic’s single-family residential unit was closer to $11 or $12 billion. In fact, a number of the regional banks who made purchase inquiries for First Republic thought it was closer to $11 or $12 billion.

If you on the one hand think that the loss in that one portfolio was $30 billion and the actual answer was more like $11 or $12 billion, would that lead to a significant difference in how you evaluate the Least Cost Test?

Chair Gruenberg: It might, Senator. I don’t know offhand the basis for the two estimates. We’d obviously have to evaluate that.

Senator Vance: One thing I want to drill down on is your estimate for the loss from liquidation was $16.2 billion, and the JPMorgan acquisition was $13.6 billion. Now, that’s a difference of less than $3 billion, but if you assume that the loss in the residential portfolio was $11 billion or even $15 billion instead of $30 billion, the Least Cost Test would have led you to liquidation.

Here’s the thing that I worry most about. Chair Gruenberg, why haven’t you responded? Why hasn’t the FDIC, why hasn’t your staff responded to so many of the inquiries that we’ve made?

Some of the information that I just read back to you is based on conversations with your staff. Some of it is based on conversation with banks or with other offices or with other financial regulators, because the FDIC won’t actually answer our questions.

And to make this point more specifically, I worry that the culture you’ve created at the FDIC makes people terrified to answer honestly, and if they’re not answering honestly it’s impossible for us to do our job of overseeing the regulation you guys do in the financial sector.

So very basic question, why haven’t you guys been more forthright in some of the questions? Are you just ignoring us? Are you just waiting for more time? Because this is important. I would actually like to know what happened, and I can’t figure out what happened because your agency won’t give me the answers.

Chair Gruenberg: I appreciate the question, Senator. I believe, as you indicate, we’ve had exchanges. I believe we’ve tried to respond in writing to the questions you’ve raised. If they haven’t been satisfactory, I’m sorry. We’re prepared to engage with you and your staff further, if that would be helpful.

Senator Vance: Certainly, and I would appreciate that. But just to recap here, Mr. Chairman, I know I’m over my time, so give me, if you would, just a minute here.

To recap, in March of 2023, you and Treasury Secretary Yellen worked with JPMorgan to inject $30 billion into First Republic in a bid to save the bank. It was a complete failure. A month later, First Republic failed anyway.

You then allowed the concentration in the financial sector by allowing JPMorgan to purchase First Republic based on a wildly off-base estimate of some of the losses that existed in First Republic, and when our offices actually try to get information to better understand this, very often we’ve been steamrolled.

If that doesn’t suggest a problem in the culture at the FDIC, I don’t know what does, and I certainly would love to work with your staff on this Mr. Gruenberg, I just don’t know if you share that commitment. Thank you.

For Background: 

  • In December of 2023, Senators JD Vance (R-OH) and Elizabeth Warren (D-MA) sent a letter to FDIC Chair Gruenberg regarding their concerns over the FDIC’s facilitation of the sale of First Republic Bank to JPMorgan. The Senators also alleged Chair Gruenberg misled Senator Vance regarding the spread of bids received for First Republic Bank.

  • Last week, the FDIC released a report which detailed systemic issues with the FDIC’s workplace culture: “As detailed in the report, the independent review found that, for far too many employees and for far too long, the FDIC has failed to provide a workplace safe from sexual harassment, discrimination, and other interpersonal misconduct. It further found that management’s responses to allegations of misconduct, as well as the culture and conditions that gave rise to them, have been insufficient and ineffective.”