Janet Yellen calls for more bank mergers

Treasury Secretary Janet Yellen conveyed to bank CEOs during a meeting on Thursday that additional bank mergers might be necessary as the industry confronts an ongoing crisis, according to two individuals familiar with the matter. This signals a growing acceptance of bank mergers by officials in the Biden administration, despite concerns from progressives and their own scrutiny of corporate concentration.

The banking sector is currently facing its most severe crisis since 2008, with numerous bank failures, plummeting stock prices, and worries about the business model of regional and mid-size banks. Regulators prefer corporate mergers, where stronger banks acquire weaker ones, to avoid destabilizing bank failures.

Yellen, accompanied by other members of the Bank Policy Institute, held discussions in Washington with prominent bank CEOs, including Jamie Dimon of JPMorgan Chase and Jane Fraser of Citigroup. The Treasury Department’s statement following the meeting emphasized the strength and stability of the US banking system, without explicitly mentioning bank mergers. However, sources familiar with the matter disclosed that bank mergers were indeed discussed during the meeting.

Yellen’s comments align with previous statements made by US regulators, who have suggested that bank mergers could be a possibility in the current environment. Yellen also expressed confidence in the solid foundation of the nation’s diverse banking system, comprising institutions of various sizes, following recent events.

While the Biden administration has shown a determination to combat corporate concentration by blocking major mergers, such as JetBlue’s takeover of Spirit and Microsoft’s acquisition of Activision Blizzard, it recently permitted JPMorgan Chase, the country’s largest bank, to acquire most of First Republic, the second-largest bank to fail in US history. This decision faced criticism from some progressives who argue that it exacerbates the problem of “too-big-to-fail” banks and places taxpayers at risk.

Financial reform advocates, such as Dennis Kelleher from Better Markets, expressed concern about further bank consolidation, emphasizing the potential of worsening the “too-big-to-fail” problem and creating conditions for a more severe future crisis.

During an interview, Yellen acknowledged the possibility of consolidation in the regional and mid-size banking sector, stating that regulators would be open to such mergers if they occur. Acting Comptroller of the Currency Michael Hsu also assured lawmakers that his agency would swiftly consider bank merger proposals, demonstrating a willingness to facilitate the process.

Investors have been wary of the regional banking sector due to concerns over potential regulations, rising deposit costs, and recent bank failures that resulted in shareholder losses. The unpredictability of these events has created apprehension among investors, causing them to be cautious and hesitant to take risks in the sector.