by Pam Martens and Russ Martens, Wall St On Parade:
Tomorrow, the Senate Banking Committee will hold a hearing to question federal banking regulators on what they are doing to restore public trust and financial stability to the U.S. banking system after the second, third and fourth largest bank failures in U.S. history occurred this Spring and caught regulators napping. One of the regulators scheduled to testify is Michael Hsu, the Acting Comptroller of the Office of the Comptroller of the Currency (OCC).
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Hsu undermined public trust in the U.S. banking system in May when he allowed JPMorgan Chase, the largest and riskiest bank in the United States, to become even larger and riskier through its purchase of the failed bank, First Republic Bank.
At a July 12 Senate hearing, Senator Elizabeth Warren had this to say about Hsu’s conduct:
“When First Republic Bank collapsed in April, the bank was ultimately sold to the biggest bank in America, JP Morgan Chase. That sweetheart deal cost the Federal Deposit Insurance Fund $13 billion. Meanwhile, overnight, the country’s biggest bank got $200 billion bigger. And what happened to the regulators? The Acting Comptroller of the Currency, Michael Hsu, rubber stamped the deal in record time. When I asked Mr. Hsu at a hearing in May to explain how this merger was approved, he was unable to provide a clear answer.
“But the overall picture gets worse. Instead of inattentive regulators who don’t use their tools to block increasing consolidation, leaders within the Biden Administration seem to be inviting more mergers. In a May 2023 statement before the House Financial Services Committee, Acting Comptroller Hsu reassured banks that the agency would be ‘open-minded’ while considering merger proposals….”
Senator Warren said this attitude was “courting disaster.”
The federal agency that is charged with providing an early warning system for serious cracks in financial stability, the Office of Financial Research, has the chart below currently residing on its website. It shows how banks rank in OFR’s Contagion Index.
OFR’s Contagion Index measures the degree to which a default by a specific bank could create systemic contagion in the U.S. banking system as a result of its interconnectedness and leverage. As of June 30, 2023, JPMorgan Chase represented three times the amount of potential contagion as the second largest bank in the U.S., Bank of America.
Hsu’s idea to deal with the collapse in public trust in the U.S. banking system is to – wait for it – conduct a survey measuring public trust in banks. Is it possible that Hsu doesn’t know that the esteemed Gallup organization has been doing just that for more than 40 years?
The most recent Gallup annual survey that measures the confidence that Americans have in key U.S. institutions was conducted between June 1-22 and released on July 6. Banks continued their downward trend, registering just 26 percent of Americans who have “a great deal” or “fair amount” of confidence in banks. That confidence ranking stood at 27 percent last year and at 33 percent in 2021.
Measured against a longer time horizon, today’s public confidence in U.S. banks looks dramatically more dire. In 1979, the Gallup poll showed 60 percent of Americans had confidence in the banks. In the years prior to the Wall Street financial crisis of 2008, which gutted the U.S. economy and also caught regulators napping, roughly half of Americans had confidence in the banks.
Another reason that trust in U.S. banks is setting four-decade lows is that the mega banks on Wall Street continue to function as serial fraudsters with no corrective pushback from their regulators – who frequently make a beeline to get a fat paycheck at the banks after leaving the U.S. government.
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