Is worst of California banking crisis over?

Your guide to California policy and politics
Lynn La BY Lynn La May 2, 2023
Presented by New California Coalition and California Water Service

Is worst of California banking crisis over?

What started in March with the stunning collapse of Santa Clara-based Silicon Valley Bank continued Monday, as state regulators announced that they had seized San Francisco-based First Republic Bank, the second biggest bank failure in U.S. history.

Quickly, the Department of Financial Protection and Innovation said it appointed as receiver the Federal Deposit Insurance Corp., which brokered a sale of First Republic to JP Morgan Chase, the nation’s biggest bank.

  • Gov. Gavin Newson, in a statement: “In close partnership and coordination with the FDIC, California DFPI took decisive and critical action to stabilize the situation, avert layoffs, and protect Californians. The swift action by FDIC to secure a purchaser for the bank will protect depositors, including uninsured depositors.”

Despite the quick action and reassurances, inquiring minds may want to know:

  • Should we be worried about California-based banks being bought by out-of-state companies?
  • Is this the end of the immediate banking crisis, as JP Morgan CEO Jamie Dimon told analysts Monday?
  • Will California lawmakers do anything, or can they?

The answers to those questions seem to be: Maybe, maybe not — but a joint banking committee oversight hearing will be held on May 10, when state regulators will field queries about how these banks failed, whether new policies can be passed to prevent more failures and how state and federal laws can work together to protect consumers.

State Sen. Monique Limón, chairperson of the Senate committee on banking and financial institutions, told CalMatters that the public hearing was scheduled before First Republic Bank’s collapse, but now it’s “very, very timely” and the information they’ll learn “will apply to two banks and not just one.”

The Democrat from Santa Barbara said Monday that she hopes we’ve reached “the bulk” of this crisis, but “it’s a little premature to say what may come out in terms of legislation.”

  • Limón: “More than anything we want well-managed banks operating in California communities, period.”

But she also noted that if lawmakers want to pass new banking regulations, they may be preempted by the federal government. President Biden called Monday for more federal regulations over large and regional banks “to make sure that we’re not back in this position again.”

Everyone wants to avoid a repeat of the 2008-09 financial crisis, when several global financial institutions and investment banks failed, causing a recession and crashing economies around the world. Afterwards, Congress put in more guardrails for the banking industry, but in 2018 and 2019, rules were relaxed for regional banks with less than $250 billion in assets — including Silicon Valley Bank and First Republic.

On Friday, the Federal Reserve issued a report blaming those lessened regulations, bad management and its own lack of oversight for Silicon Valley Bank’s failure in early March. That spooked customers and investors at First Republic, which lost $100 billion in deposits since and saw its stock lose 97% of its value. Both California banks catered to wealthy clients whose accounts had more than the $250,000 protected by federal insurance.

The FDIC said that 84 of First Republic Bank’s offices, located in eight states, will reopen as JP Morgan Chase branches. First Citizens Bank, headquartered in Raleigh, N.C., bought the remaining assets of Silicon Valley Bank, doubling its size.


Electric vehicle primer: New from our engagement team — a version of our electric vehicle explainer, especially made for libraries and community groups, as part of the CalMatters for Learning initiative. Topics already featured: Wage theft, water and state government.


1 The teachers who tough it out

Teachers from San Francisco, Los Angeles and Buttonwillow. Photos by Shelby Knowles and Pablo Unzueta for CalMatters and Larry Valenzuela, CalMatters/CatchLight Local

Research shows that a high-quality teacher can lift a child born into poverty. An experienced, charismatic and committed educator can guide students facing socioeconomic hurdles into college, high-paying careers and generational wealth.

But schools with more students living in poverty tend to have fewer experienced teachers. Many teachers, once they pick up a few years of experience, prefer schools in more affluent communities. The challenges are undeniable: Students in low-income neighborhoods are more likely to be absent or act out in class. The causes are numerous: Students living in poverty are more likely to come to school hungry, and they’re more likely to lack stable housing. All those factors contribute to lower test scores and graduation rates.

Today, CalMatters publishes the second installment of “The Turnover Trap.” For the first story in the series, K-12 education reporter Joe Hong examined the statewide disparities in California’s teaching force and one possible solution for closing the gap — higher pay. For this second story, Joe profiles three veteran teachers who choose to stay at more challenging high-poverty schools:

  • Esther Honda, a teacher at Willie L. Brown Jr. Middle School in San Francisco: “Privileged kids… can do well with all kinds of teachers. My kids need me.”
  • Bridgette Donald Blue, a teacher at Coliseum Street Elementary School in Los Angeles: “Sometimes students have big problems that are well beyond their control. They just want to be heard.”
  • Dawn Payne, a teacher at Buttonwillow Union School in Kern County: “Teachers here are fiercely loyal to their kids. At a school like this, it’s important to be able to form that kind of bond.”

All three of these teachers previously have worked in more affluent districts. At this point in their careers, they’re driven by purpose and the relationships they’ve forged in their high-needs communities.

 In the third and final installment of “The Turnover Trap,” Joe will dig into the various proposals — and their political viability — for keeping more teachers like Honda, Donald Blue and Payne in high-poverty schools.

2 Getting closer to dollars on reparations

Task Force members listen during the public comment portion of the AB 3121 Task Force to Study and Develop Reparations Proposals for African Americans meeting in Oakland on Dec. 14, 2022. Photo by Martin do Nascimento, CalMatters
California’s reparations task force meets in Oakland on Dec. 14, 2022. Photo by Martin do Nascimento, CalMatters

Since it first began meeting in 2021, the state-appointed task force to study whether and how California should pay reparations for slavery avoided mentioning a dollar amount. But on Monday, it finally released estimates to be voted on as soon as Saturday — not for official payouts, but calculations by its economists on the damages afflicted by slavery. 

As Wendy Fry of CalMatters’ California Divide team explains, the loss estimates depend on the type of racial harm and how long a person has lived in California. They range from $2,300 per person per year for the over-policing of Black communities to $77,000 total per person for damages to Black-owned businesses. 

The Legislature, whose support of the task force has varied, will have to decide how much of those losses to compensate with actual reparations. And while it may be some time before any payments are distributed, the new document suggests making down payments rather than waiting for full calculations on what is owed. 

The new estimates are featured in a 500-page report that outlines ways the state could calculate how much money African Americans have lost since California’s establishment in 1850. It includes estimates of economic losses stemming from mass incarceration, housing discrimination and health harms. And it discusses two kinds of reparations: Those arising from particular instances of discrimination or harm that require an individual to file a claim, and those that involve distributing money or benefits to all eligible Black Californians for racial harm the entire community experienced. 

The task force, which faces a July 1 deadline to make its recommendations to the Legislature and Gov. Newsom, is also looking at policies to prevent discrimination. 

  • Monica Montgomery Steppe, a task force member: “It is critical that we compensate, but not just compensate. We also need to evaluate policy that continues to hold us back.”

Still, it’s the dollar amount that is likely to be the most contentious recommendation. Up to this point, the task force sought to downplay the number. One member, Cheryl Grills, told Wendy in April that the figure is “the least important piece” of its study, and that the news media’s “preoccupation” with it is “unfortunate.”

3 Elk Grove on naughty list for housing

An aerial view of Elk Grove. Photo by Matt Gush, iStock
An aerial view of Elk Grove. Photo by Matt Gush, iStock

From CalMatters housing reporter Ben Christopher:

Elk Grove, the state will see you in court. 

The Newsom administration announced Monday it’s suing the Sacramento suburb over its rejection of a 67-unit project meant to provide homes and services for people living on the street or at risk of becoming homeless.

The Oak Rose apartment complex, proposed for the Old Town historic strip, has been in legal limbo since 2021, when its developer tried to make use of a sweeping state law that grants automatic approval to dense housing projects in cities that haven’t met their state-set housing goals. 

All five members of the city council — including now Democratic Assemblymember Stephanie Nguyen — disagreed, arguing that the state law didn’t apply because the project wasn’t consistent with Old Town’s zoning rules.

After issuing the city two stern warnings in recent months, Attorney General Rob Bonta announced the lawsuit, claiming that Elk Grove has “chosen to stifle affordable housing projects, discriminate against lower-income families and knowingly violate state housing law.”

The state notes in its lawsuit that the city was willing to overlook the same zoning mismatch for a nearby market-rate apartment complex

In a statement, Elk Grove Mayor Bobbie Singh-Allen disputed the comparison, arguing that the other project wasn’t proposed under the state streamlining law.

  • Singh-Allen: “Elk Grove is doing its part to support affordable housing in the region and remains open to working with the state, the developers of the Oak Rose project, and other developers to increase the housing supply and offer a full range of housing options for everyone.”

This is familiar terrain for Bonta, who has made the aggressive enforcement of state housing laws one of his calling cards as attorney general. In March, he sued the Orange County ‘burb of Huntington Beach.

The housing crisis that Bonta says he is fighting stems from a basic math problem: A lot of people want to live in California and there aren’t enough homes to go around.

But new numbers published Monday by the state’s Department of Finance notes that this issue is solving itself — albeit, very, very slowly.

  • For the second calendar year in a row, the state’s population shrank slightly, a little less than 38.9 million at the beginning of 2023 — a decline of 0.35%.
  • Over the same period, California saw its stock of new homes grow by 0.85% — a faster annual clip than since the beginning of the Great Recession.

Part of that housing growth could be thanks to a recent salvo of new housing laws, particularly those that encourage the construction of backyard accessory dwelling units, which made up 17% of all new units last year.

The population change isn’t even across the state. Its biggest cities and nearly every county along the coast lost population, while select cities in the Inland Empire and San Joaquin Valley saw their headcounts increase.

No coincidence: The 10 cities adding the most people were also some of those that built the most new housing, adding new homes at between three and 18 times the statewide average.


CalMatters Commentary

CalMatters columnist Dan Walters: California’s budget deficit is growing, but top Democrats disagree what to do.

State officials should examine SoCalGas’s role in the lawsuit that overturned Berkeley’s first-in-the-nation ban on natural gas hook-ups in new buildings, writes Matt Vespa, a senior attorney with Earthjustice


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L.A. County facing as many as 3,000 plaintiffs in sex abuse cases // Los Angeles Times

The last days of death row in California: ‘Your soul is tested here’ // The Guardian

Preserving the legacy of Japanese American farms in southern California // The New York Times

Copenhagen mayor to Solvang, CA ‘Danish capital:’ Stop acting homophobic // Los Angeles Times

Should Nathan Fletcher’s successor be appointed or elected? // The San Diego Union-Tribune

See you tomorrow


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