“Treasury Secretary Yellen Indicates Potential for Bank Mergers Amidst Crisis”


During a meeting with large bank CEOs on Thursday, Treasury Secretary Janet Yellen suggested that additional bank mergers may be necessary to navigate the ongoing banking crisis, according to sources familiar with the matter. This signals a potential shift in the Biden administration’s stance on bank mergers, despite concerns from progressives and their scrutiny of corporate concentration.

The recent banking crisis, considered the most severe since 2008, has raised concerns about bank failures, plummeting stock prices, and the viability of regional and mid-size banks. In response, regulators are favoring corporate mergers in which stronger banks acquire weaker ones, as a preferable alternative to destabilizing bank failures.

Ed Mills, a Washington policy analyst at Raymond James, states that “consolidation is inevitable,” but notes the Catch-22 of facing progressive backlash against such mergers. Against this backdrop, Yellen met with CEOs such as Jamie Dimon of JPMorgan Chase and Jane Fraser of Citigroup, alongside other board members of the Bank Policy Institute.

While the Treasury Department’s official readout of the meeting emphasized the strength and soundness of the US banking system, it did not specifically mention bank mergers. However, sources indicate that Yellen did discuss the possibility of mergers with the bank CEOs. Yellen echoed previous remarks from US regulators, suggesting that bank mergers might be necessary in the current environment.

Yellen expressed confidence in the nation’s diverse banking system, comprising institutions of varying sizes, and reassured stakeholders that recent events had not undermined its solid foundation. Notably, the Biden administration has been actively seeking to curb corporate concentration, as evidenced by attempts to block major mergers such as JetBlue’s acquisition of Spirit and Microsoft’s purchase of Activision Blizzard.

Paradoxically, regulators recently permitted JPMorgan Chase, the largest bank in the US, to acquire most of First Republic, the second-largest bank failure in the country’s history. While this deal aimed to stabilize the system and followed a competitive bidding process, it drew criticism from progressive voices concerned about the further expansion of too-big-to-fail banks.

Dennis Kelleher, co-founder of financial reform advocacy group Better Markets, expressed worry about additional bank consolidation, emphasizing that no mergers should exacerbate the too-big-to-fail problem, which could sow the seeds for future crises.

Yellen mentioned in an interview with Reuters that a certain level of consolidation in the regional and mid-size banking sector may occur, indicating that regulators would be receptive to such mergers if they arise. Acting comptroller of the currency, Michael Hsu, also stated that his agency would promptly consider bank merger proposals.

Investors have been cautious about the regional banking sector due to concerns over potential new regulations, rising deposit costs, and the recent failure of banks that resulted in shareholders losing their investments. This has created an environment where few investors are willing to take risks.

In summary, Treasury Secretary Janet Yellen’s indication of potential bank mergers amidst the ongoing banking crisis suggests a shifting perspective within the Biden administration. While concerns about corporate concentration persist, regulators may view consolidation as a means to address the challenges faced by the banking industry.