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In the aftermath of a series of bank failures, U.S. Senator Elizabeth Warren has called on financial regulators to address the issue of bank consolidation and promote competition in the industry.
Senator Warren cited a report from Politico’s “Morning Money,” which indicated a change in sentiment towards mergers for midsize lenders among government officials and big U.S. banks. (Photo: Bill Moyers)
Senator Warren’s Letter
Senator Elizabeth Warren urged regulators to strengthen the merger review process and improve merger guidelines in a letter addressed to several key figures, including Assistant Attorney General Jonathan Kanter, Federal Deposit Investment Corporation (FDIC) Chairman Gruenberg, Acting Comptroller of the Currency Michael Hsu, Federal Reserve Vice Chair for Supervision Michael Barr, and Treasury Secretary Janet Yellen.
The letter referred to the collapse of Silicon Valley Bank, followed closely by the failures of Signature Bank and the First Republic, attributing these failures to poor risk management, corporate greed, deregulation, and a lack of sufficient federal supervision.
Senator Warren expressed concern that Secretary Yellen and Acting Comptroller Hsu seemed to be inclined toward supporting further bank consolidation, despite the recent bank crises, a published news article reported.
Greg Baer, CEO of the Bank Policy Institute, acknowledged that there is growing recognition at the highest levels that midsize banks should be allowed to merge and potentially be acquired by larger banks.
However, Senator Warren emphasized the need to ensure that these intentions translate into meaningful action.
Warren concluded her letter by posing several questions about the ongoing efforts to update bank merger review guidelines, including the expected release date of these guidelines. She requested responses from the recipients by July 10.
In addition to her letters, Warren has been actively engaging with financial regulators through congressional hearings.
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Senator Warren Urges Stronger Merger Review Process
Senator Warren argued that the recent bank crisis underscored the urgency of strengthening the merger review process and reversing the dangerous trend of bank consolidation.
She expressed strong disapproval of the federal banking agencies’ handling of the issue of bank concentration, pointing out their lack of effectiveness in addressing it.
She highlighted the fact that these agencies have not officially rejected any bank merger application in the past 15 years, and it has been over 35 years since the U.S. Department of Justice last challenged such a merger.
Senator Warren emphasized that there has been a significant decrease in the number of commercial banks in the United States, declining by 70% in the last twenty years.
This decline has been further accelerated by the staggering amount of $77 billion involved in bank mergers and acquisitions in 2021, marking the highest annual deal volume since the 2008 financial crisis.
She emphasized that such consolidation not only harms consumers and small businesses but also increases systemic risk in the financial system by reducing the number of smaller banks and creating more “too-big-to-fail” institutions.
The senator proposed the Bank Merger Review Modernization Act as one of the solutions to limit consolidation in the banking sector. The act includes policies aimed at ensuring mergers are in the public interest and restricting excessive consolidation.
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