In a letter Tuesday, Sen. Elizabeth Warren, D-MA, urged financial regulators to promote more competition in the banking space and strengthen bank merger guidelines.
"Allowing additional bank consolidation would be a dereliction of your responsibilities, hurting American consumers and small businesses, betraying President [Joe] Biden's commitment to promoting competition in the economy, and threatening the stability of the financial system and the economy," Warren wrote to Treasury Secretary Janet Yellen, Federal Deposit Insurance Corp. Chair Martin Gruenberg, Federal Reserve Vice Chair for Supervision Michael Barr, Assistant Attorney General Jonathan Kanter of the Justice Department, and the acting chief of the Office of the Comptroller of the Currency, Michael Hsu.
Warren specifically called out Yellen and Hsu for taking the "wrong lessons" from the failures of Silicon Valley Bank, Signature Bank and First Republic.
Yellen told Reuters last month she expected to see U.S. regulators allow more mergers among midsize banks.
"This might be an environment in which we're going to see more mergers, and you know, that's something I think the regulators will be open to, if it occurs," she told the wire service.
Shortly afterward, Hsu testified to Congress that the OCC is "committed to being open-minded when considering merger proposals and to acting in a timely manner on applications, consistent with the requirements of the Bank Merger Act."
In her letter, Warren wrote, "This would represent exactly the wrong approach,” asserting that bank consolidations pose increased systemic risk to the financial system while hurting consumers.
The number of commercial banks in the U.S., for example, has fallen by 70% over the past 20 years, Warren noted, and the trend is accelerating with $77 billion in bank mergers and acquisitions in 2021.
"I have long been concerned with bank concentration and your agencies' failures to curb the proliferation of banks that are ‘too-big-to-fail,’" Warren told the officials.
She blasted Kanter, as well — saying his department has not challenged a bank merger in more than 35 years, adding that no federal banking regulator has formally denied a bank merger application in a decade and a half.
In a speech last week, Kanter said the Justice Department would not force banks to divest branches as a condition for merger approval and, further, would defer to banking regulators to devise appropriate remedies for competition issues.
Warren, in her letter, asked Kanter why the DOJ presumably relinquished some responsibility. She then asked whether the Fed intended to publish summaries of the DOJ’s report on competitive factors for each proposed merger.
More broadly, she asked the regulators when they would release updated merger review guidelines and how a measure of financial stability was taken into account.
Warren asked the officials to reply by July 10.
"Shoring up our banking system will require stronger regulation and more vigorous oversight of big banks to keep them from failing in the first place, and stronger merger guidelines and rules that significantly check consolidation and limit the size and number of too big to fail banks that put taxpayers at risk," Warren wrote.
