Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our s 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. Brace yourself for bank-on-bank warfare in Washington. The banking industry’s factions of lobbyists are beginning to draw battle lines following the collapse of regional lenders Silicon Valley Bank and Signature Bank, as a regulatory crackdown looms. The opening salvo is coming from the Independent Community Bankers of America, a trade association representing the nation’s smallest banks. The group is one of Washington’s lobbying powerhouses, with members beloved and protected by lawmakers on the left and the right. The ICBA entered the fray early Monday with this message to reporters covering the crisis: “Silicon Valley Bank and the Nation’s Largest Banks Are Not Community Banks.” ICBA is now gearing up to make the case that its members shouldn’t have to pay for the rescue of bank depositors and that the largest lenders deserve stricter oversight from regulators. ICBA President and CEO Rebeca Romero Rainey told MM that community banks shouldn’t have to pay any special assessments “to cover the sins of the largest and riskiest institutions.” It’s a live issue now that the government has promised to backstop all deposits at the two failed lenders, with individual banks potentially on the hook for fees to cover the cost of replenishing the deposit insurance fund. Looking ahead, Romero Rainey said Congress and the regulators need to consider strengthening rules for the largest banks. Everyone is still assessing the situation, but bank capital is part of the discussion, she said. “As we saw the systemic impact that failure would have, we have to learn from that and avoid it in the future,” she said. It’s a message that’s already starting to annoy bigger players in the industry. “When you see deposits flooding out of small banks to large ones, it gets really tough to claim that large banks need more capital or liquidity,” said one large bank representative, granted anonymity to respond candidly. “But salmon swim upstream, so perhaps the ICBA thinks it can too.” Financial Services Forum spokesperson Barbara Hagenbaugh said the U.S. “broadly benefits from a strong and resilient system of banks of all sizes to meet the many and diverse needs of our economy.” The group represents eight of the largest U.S. banks. “As we saw during the pandemic and we are seeing now, the eight Forum members are strong and diversified, acting as a source of support for the economy,” she said Romero Rainey said part of her challenge is ensuring “differentiation” as larger banks use the uncertainty to win over customers from smaller lenders. “I hate to see folks taking advantage of this situation to portray a different scenario or a lack of strength,” she said. It’s Tuesday — Help us stay on top of this mess. Send tips to zwarmbrodt@politico.com and ssutton@politico.com.
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